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Bank Stock Roundup: Rate Hike & Outlook, Fake Account Findings, C & WFC in Focus

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Over the last five trading days, the most important development was the Fed’s decision to raise the outlook for number of rate hikes to four this year, apart from increasing the interest rates for the second time in 2018. Also, the central bank provided improved economic growth forecast for the year.

As banks are the biggest beneficiary of higher interest rates and their overall growth is tied to that of the nation, these developments will likely further support their profitability.

However, banks’ price performance was bearish over the last five trading sessions. So, what could be the reasons behind this dismal investor stance?

Well, one of the reasons seems to be lackluster performance of the broader market over the same time frame. Impending trade war fear and geo-political tensions were the primary reasons for this dismal performance. So, banking stocks did not remain untouched.

Further, the finding by the Office of the Comptroller of the Currency that Wells Fargo (WFC - Free Report) wasn’t alone in opening unauthorized accounts and that there are several other major banks with similar business misconducts made investors skeptical. While no names were disclosed, the concern that banks may face additional probes and lawsuits hurt investor sentiments.

Additionally, in line with other major banks, Citigroup (C - Free Report) also provided soft trading outlook for the second quarter.

(Read: Bank Stock Roundup for the Week Ending Jun 1, 2018)



Important Developments of the Week

1. At the Morgan Stanley Financials Conference in New York, Citigroup’s chief financial officer, John Gerspach, announced outlook for the second quarter. The bank expects trading revenues to be “flattish” year over year. Notably, equities business is expected to be strong, whereas disappointment will likely be experienced in fixed income business. (Read more: Citigroup Projects Lackluster Trading Revenues for Q2)

2. In order to compete with the startup lenders, Wells Fargo is mulling over ideas to simplify the credit and debit card pricing method for small companies. The news was reported by Bloomberg. (Read more: Wells Fargo to Relax Pricing Policy for Small Businesses)

3. Already grappling with legal issues, Wells Fargo has been slapped with another federal lawsuit. The lawsuit has been filed against the bank by San Antonio-based USAA, a big insurance company, for infringement on the latter’s patented technology. (Read more: Wells Fargo in Trouble, USAA Accuses of Patent Infringement)

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-2.8%

4.3%

BAC

-1.7%

3.5%

WFC

-1.7%

-6.3%

C

-3.4%

-9.7%

COF

-0.7%

3.2%

USB

-2.2%

-4.9%

PNC

-4.7%

0.2%



Over the last five trading sessions, PNC Financial (PNC - Free Report) and Citigroup were the major decliners, with their shares falling 4.7% and 3.4%, respectively. Moreover, shares of JPMorgan (JPM - Free Report) and U.S. Bancorp (USB - Free Report) lost 2.8% and 2.2%, respectively.

JPMorgan and Bank of America (BAC - Free Report) have been the best performers over the past six months, with the stocks appreciating 4.3% and 3.5%, respectively. However, shares of Citigroup declined 9.7%.

What’s Next?

Over the next five trading days, bank stocks are expected to continue performing in a similar manner unless any unforeseen incident occurs.

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