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Bank Stock Roundup: USB, JPM, WFC & TFC in Focus on Restructuring Initiatives

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Over the past four trading sessions, performance of major bank stocks depicted a bullish picture. This optimism primarily seems to be driven by the hopes of more economic stimulus as the U.S. Congress confirmed Joe Biden’s victory in the Presidential election. The additional stimulus package is likely to spur economic growth and more lending along with less chance of credit losses for banks.

Further, the gradual rollout of COVID-19 vaccines across the globe has led investors anticipating faster economic recovery. With banks’ financials directly tied to the health of the economy, investors are now expecting improved profitability for major banks in the quarters ahead.

These encouraging developments led the rate on the 10-year Treasury bond to rise 15 basis points (bps) to 1.08% (the highest level since mid-March 2020) over the past four trading days. Also, the yield on the 30-year Treasury bond climbed 20 bps over the same time frame to 1.85%. Thus, steepening yield curve is expected to benefit major banks’ net interest margins amid low interest rate environment.

Now talking about bank specific developments, the key theme during the past four trading sessions was business expansion (domestic and international). As major banks face revenue growth challenges owing to low rates and tough backdrop, they are taking measures to further diversify operations and fuel top-line growth. Divesting non-core and less-profitable businesses to focus more on core operations also remains high in the cards.



(Read: Bank Stock Roundup for the Week Ending Dec 11, 2020)

Important Developments of the Week

1. As part of its efforts to increase presence on the West Coast, U.S. Bancorp (USB - Free Report) inked a deal to acquire the debt servicing and securities custody services client portfolio of MUFG Union Bank, N.A. The financial terms of deal, expected to close later this quarter, have not been disclosed yet. The company will likely acquire 600 client relationships, and assets under custody and administration worth $320 billion.

2. JPMorgan (JPM - Free Report) closed the deal to acquire the Global Loyalty division of cxLoyalty Group Holdings, which includes cxLoyalty’s leading technology platforms, full-service travel agency, gift card, merchandise, and points bank businesses. Now, cxLoyalty will operate as a business unit within JPMorgan.

Additionally, per Bloomberg (citing people familiar with the matter), JPMorgan is in preliminary talks to set up a new wealth management joint venture with China Merchants Bank Co. The talks are private and none of the firms have made any comments. Also, ownership details haven’t been discussed yet.

3. Wells Fargo (WFC - Free Report) is likely to expand its investment banking operations in the coming years, per Bloomberg. This segment includes equity and debt underwriting, along with advisory services on mergers and acquisitions to corporate clients. The strategic actions are part of CEO Charles Scharf’s strategy to revamp the bank.

In a separate, positive development, Wells Fargo announced that a consent order, placed in 2015, related to its anti-money laundering compliance program was terminated by the Office of the Comptroller of the Currency. The regulators are satisfied with the remedial measures taken by the bank regarding the consent order.

4. Truist Financial (TFC - Free Report) has sold its institutional 401(k) investment advisory services business to OneDigital Investment Advisors and has agreed to sell its institutional 401(k) recordkeeping businesses to Ascensus and Empower Retirement. Financial terms of none of the three transactions have been disclosed yet.

The deal with Ascensus and Empower is expected to be completed in first-quarter 2021. Ascensus is expected to acquire Truist Financial’s heritage BB&T 401(k) recordkeeping business, which includes more than 1,200 retirement plans that consists of 125,000 plan participants and assets worth $5 billion. On the other hand, Empower is set to acquire the heritage SunTrust 401(k) recordkeeping business, including 300 retirement plans, consisting of 73,000 participants and $5 billion in assets.

The head of wealth for Truist Financial, Joe Thompson, stated, “The institutional 401(k) industry has experienced significant consolidation, and Ascensus, Empower and OneDigital are well-positioned to provide scale and expertise for our plan sponsor clients and their plan participants. Truist will continue to focus on growth opportunities and make strategic investments in our wealth management business that advance our digital capabilities and expand our team of advisors.”

5. Fifth Third Bancorp (FITB - Free Report) announced the completion of the acquisition of Hammond Hanlon Camp LLC. The terms of the deal, announced on Dec 2, 2020, have not been disclosed yet. The acquisition will further fortify the company’s presence in the lucrative healthcare industry.

6. Similar to the last 42 quarters, Bank OZK (OZK - Free Report) announced a dividend hike yet again. The company announced a quarterly cash dividend of 27.75 cents per share, representing an increase of 0.91% from the prior payout.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

8.7%

49.6%

BAC

9.4%

44.7%

WFC

12.6%

37.9%

C

9.8%

34.2%

COF

13.2%

85.4%

USB

8.4%

43.4%

PNC

6.6%

62.9%


Over the past four trading days, Capital One (COF - Free Report) and Wells Fargo have recorded the maximum gains, with their shares appreciating 13.2% and 12.6%, respectively. Also, shares of Citigroup have gained 9.8% during the same period.

In the past six months, shares of Capital One, PNC Financial and JPMorgan have soared 85.4%, 62.9% and 49.6%, respectively.

What’s Next?

Over the next five trading days, unless there is any major change in the economic situation related to the coronavirus pandemic, the major bank stocks are likely to perform in a similar fashion.

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