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The Zacks Analyst Blog Highlights KeyCorp, Wells Fargo, U.S. Bancorp and The Bank of Nova Scotia
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For Immediate Release
Chicago, IL – September 10, 2024 – Zacks.com announces the list of stocks and featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: KeyCorp (KEY - Free Report) , Wells Fargo (WFC - Free Report) , U.S. Bancorp (USB - Free Report) and The Bank of Nova Scotia (BNS - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Keep an Eye on 3 S&P 500 Bank Stocks with Biggest Weekly Declines
Historically, September has been a sluggish month for the stock market, a trend that continued this year, with the S&P 500 Index declining 4.4% in the first week.
With the Federal Reserve’s first interest rate cut since March 2020 in focus, investors are on the edge. This was further compounded by a significant cooling down of the job market, sparking recession fears. Hence, the market participants are now expecting a sizable rate cut at the two-day FOMC meeting on Sept.17-18.
As the broader market witnessed sustained weakness, bank stocks were not untouched. The KBW Nasdaq Bank Index and the S&P 500 banks industry group index fell more than 5.5%. The three worst-performing S&P 500 banks – KeyCorp, Wells Fargo and U.S. Bancorp – recorded a steeper fall than the index and the industry they belong to. These banks currently carry a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Traditionally, banks perform well in a rising rate environment, but this time it’s different. Aggressive interest rate hikes by the central bank in the past four decades have weakened banks’ financial performance due to sluggish loan demand, rising funding/deposit costs and deteriorating asset quality.
In response, banks are diversifying revenue streams toward fee income sources, curtailing risky loan portfolios and restructuring balance sheets to maintain profitability. These efforts, combined with potential rate cuts, are expected to support banks’ profitability this year and beyond.
3 S&P 500 Banks With Steep Weekly Dip to Watch
KeyCorp: This Cleveland, OH-based lender has a presence across 15 states through a network of almost 1,000 branches and 1,200 automated teller machines (ATMs).
On Aug. 12, KeyCorp announced a minority equity investment of $2.8 billion (in aggregate) by The Bank of Nova Scotia in two tranches. The first phase was completed on Aug. 30, and now BNS holds a 4.9% equity stake in KEY.
The second part involves BNS making an additional $2 billion of investment, expected to close in the first quarter of 2025, pending the Fed’s consent. After this, BNS will have a 14.9% equity interest in KeyCorp.
Once the capital raise is complete, KeyCorp plans to evaluate repositioning its available-for-sale (AFS) securities portfolio by divesting low-yielding, longer-duration AFS securities and investing the proceeds in higher-yielding, more liquid securities.
Though the divestiture of lower-yielding AFS securities will result in a one-time after-tax loss of almost half of the capital raised, it will lead to approximately $400 million in additional net interest income (NII) in 2025 and 2026. This will also be low single-digit accretive to KeyCorp’s 2025 earnings and slightly accretive to its 2026 earnings.
KeyCorp is expected to benefit from the Fed’s interest rate cuts. While higher interest rates led to substantial growth in NII, the rising funding costs have been straining NII and net interest margin (NIM). Last year, the company’s NII declined 13.6% and NIM contracted 46 basis points to $3.91 billion and 2.17%, respectively.
For 2024, KeyCorp expects NII to decline 2-5% because of higher funding costs and subdued loan demand.
The minority equity investment by BNS, interest rate cuts and the company’s efforts to strengthen fee income sources will support top-line growth. So, investors should keep an eye on the stock. Last week, KEY stock was down 8%.
Wells Fargo: As one the biggest American lenders, the company operates through 4,227 retail bank branches.
Once one of the biggest mortgage lenders, the company is now gradually moving away from this business. On Aug. 20, WFC announced a definitive agreement to divest its non-agency third-party servicing segment of its Commercial Mortgage Servicing business to Trimont. The transaction is expected to close in early 2025, subject to customary closing conditions.
In 2023, the company announced its exit from the Correspondent business and reduction of its mortgage servicing portfolio.
Wells Fargo’s prudent expense management initiatives support its financials. Since third-quarter 2020, the company has been actively engaging in cost-cutting measures, including streamlining its organizational structure, closure of branches and reduction in headcount. Hence, non-interest expenses witnessed a negative CAGR of 1.1% over the last four years (ended 2023). The bank delivered gross expense savings aggregating $10 billion in 2021-2023 and expects to continue with these efficiency initiatives in 2024.
Nonetheless, the asset cap placed by the Fed after the 2016 account scandal remains the biggest concern for WFC. Though the company is striving hard to meet the regulatory requirements, it is limiting loan growth and hurting NII expansion.
Considering the subdued loan demand and other factors like high interest rates, asset repricing, competitive market conditions, and the broader economic environment, the company expects 2024 NII to be down approximately 8-9%.
Like all banks, interest rate cuts will be a boon for WFC. This, along with its solid fundamentals, should offer investors robust returns over time. The stock was down 7.7% last week. Investors interested in investing in WFC should keep track of the company’s financials and make informed decisions.
U.S. Bancorp: Headquartered in Minneapolis, MN, the company operates in the Midwest and West regions of the United States.
Diverse revenue sources and inorganic growth moves will support U.S. Bancorp’s financials. Last month, the company, through its lead banking division, U.S. Bank, expanded its focus on the healthcare industry and acquired Salucro Healthcare Solutions LLC. It will be integrated into Elavon, one of the largest global payments processing firms.
Further, U.S. Bank announced a partnership with Edward Jones to offer co-branded banking and credit card solutions to Edward Jones' U.S. clients. Starting in late 2025, Edward Jones' 19,000+ financial advisors, managing $2 trillion in assets, will introduce these products to their 8 million clients across North America.
These expansion initiatives, combined with the ongoing investments in innovative product enhancements and services, will strengthen the company’s fee-based businesses.
On the other hand, high rates and weak loan demand are hurting its NII because of rising funding costs. Hence, as the central bank cuts interest rates, deposit costs are likely to stabilize gradually. Also, USB’s investment portfolio repositioning efforts and less deposit migration will support the metric. For 2024, management expects NII to be in the range of $16.1-$16.4 billion, down from the 2023 level.
Also, solid loan pipelines in the commercial and credit card space will drive loan growth, while stabilizing deposit trends will support deposit growth. U.S. Bancorp has made several strategic acquisitions in the past years, which have opened new markets and fortified existing ones.
Last week, shares of USB lost 5.8%. Investors should keep a note of the company’s latest developments and financial strength to make the right investment decision.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights KeyCorp, Wells Fargo, U.S. Bancorp and The Bank of Nova Scotia
For Immediate Release
Chicago, IL – September 10, 2024 – Zacks.com announces the list of stocks and featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: KeyCorp (KEY - Free Report) , Wells Fargo (WFC - Free Report) , U.S. Bancorp (USB - Free Report) and The Bank of Nova Scotia (BNS - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Keep an Eye on 3 S&P 500 Bank Stocks with Biggest Weekly Declines
Historically, September has been a sluggish month for the stock market, a trend that continued this year, with the S&P 500 Index declining 4.4% in the first week.
With the Federal Reserve’s first interest rate cut since March 2020 in focus, investors are on the edge. This was further compounded by a significant cooling down of the job market, sparking recession fears. Hence, the market participants are now expecting a sizable rate cut at the two-day FOMC meeting on Sept.17-18.
As the broader market witnessed sustained weakness, bank stocks were not untouched. The KBW Nasdaq Bank Index and the S&P 500 banks industry group index fell more than 5.5%. The three worst-performing S&P 500 banks – KeyCorp, Wells Fargo and U.S. Bancorp – recorded a steeper fall than the index and the industry they belong to. These banks currently carry a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Traditionally, banks perform well in a rising rate environment, but this time it’s different. Aggressive interest rate hikes by the central bank in the past four decades have weakened banks’ financial performance due to sluggish loan demand, rising funding/deposit costs and deteriorating asset quality.
In response, banks are diversifying revenue streams toward fee income sources, curtailing risky loan portfolios and restructuring balance sheets to maintain profitability. These efforts, combined with potential rate cuts, are expected to support banks’ profitability this year and beyond.
3 S&P 500 Banks With Steep Weekly Dip to Watch
KeyCorp: This Cleveland, OH-based lender has a presence across 15 states through a network of almost 1,000 branches and 1,200 automated teller machines (ATMs).
On Aug. 12, KeyCorp announced a minority equity investment of $2.8 billion (in aggregate) by The Bank of Nova Scotia in two tranches. The first phase was completed on Aug. 30, and now BNS holds a 4.9% equity stake in KEY.
The second part involves BNS making an additional $2 billion of investment, expected to close in the first quarter of 2025, pending the Fed’s consent. After this, BNS will have a 14.9% equity interest in KeyCorp.
Once the capital raise is complete, KeyCorp plans to evaluate repositioning its available-for-sale (AFS) securities portfolio by divesting low-yielding, longer-duration AFS securities and investing the proceeds in higher-yielding, more liquid securities.
Though the divestiture of lower-yielding AFS securities will result in a one-time after-tax loss of almost half of the capital raised, it will lead to approximately $400 million in additional net interest income (NII) in 2025 and 2026. This will also be low single-digit accretive to KeyCorp’s 2025 earnings and slightly accretive to its 2026 earnings.
KeyCorp is expected to benefit from the Fed’s interest rate cuts. While higher interest rates led to substantial growth in NII, the rising funding costs have been straining NII and net interest margin (NIM). Last year, the company’s NII declined 13.6% and NIM contracted 46 basis points to $3.91 billion and 2.17%, respectively.
For 2024, KeyCorp expects NII to decline 2-5% because of higher funding costs and subdued loan demand.
The minority equity investment by BNS, interest rate cuts and the company’s efforts to strengthen fee income sources will support top-line growth. So, investors should keep an eye on the stock. Last week, KEY stock was down 8%.
Wells Fargo: As one the biggest American lenders, the company operates through 4,227 retail bank branches.
Once one of the biggest mortgage lenders, the company is now gradually moving away from this business. On Aug. 20, WFC announced a definitive agreement to divest its non-agency third-party servicing segment of its Commercial Mortgage Servicing business to Trimont. The transaction is expected to close in early 2025, subject to customary closing conditions.
In 2023, the company announced its exit from the Correspondent business and reduction of its mortgage servicing portfolio.
Wells Fargo’s prudent expense management initiatives support its financials. Since third-quarter 2020, the company has been actively engaging in cost-cutting measures, including streamlining its organizational structure, closure of branches and reduction in headcount. Hence, non-interest expenses witnessed a negative CAGR of 1.1% over the last four years (ended 2023). The bank delivered gross expense savings aggregating $10 billion in 2021-2023 and expects to continue with these efficiency initiatives in 2024.
Nonetheless, the asset cap placed by the Fed after the 2016 account scandal remains the biggest concern for WFC. Though the company is striving hard to meet the regulatory requirements, it is limiting loan growth and hurting NII expansion.
Considering the subdued loan demand and other factors like high interest rates, asset repricing, competitive market conditions, and the broader economic environment, the company expects 2024 NII to be down approximately 8-9%.
Like all banks, interest rate cuts will be a boon for WFC. This, along with its solid fundamentals, should offer investors robust returns over time. The stock was down 7.7% last week. Investors interested in investing in WFC should keep track of the company’s financials and make informed decisions.
U.S. Bancorp: Headquartered in Minneapolis, MN, the company operates in the Midwest and West regions of the United States.
Diverse revenue sources and inorganic growth moves will support U.S. Bancorp’s financials. Last month, the company, through its lead banking division, U.S. Bank, expanded its focus on the healthcare industry and acquired Salucro Healthcare Solutions LLC. It will be integrated into Elavon, one of the largest global payments processing firms.
Further, U.S. Bank announced a partnership with Edward Jones to offer co-branded banking and credit card solutions to Edward Jones' U.S. clients. Starting in late 2025, Edward Jones' 19,000+ financial advisors, managing $2 trillion in assets, will introduce these products to their 8 million clients across North America.
These expansion initiatives, combined with the ongoing investments in innovative product enhancements and services, will strengthen the company’s fee-based businesses.
On the other hand, high rates and weak loan demand are hurting its NII because of rising funding costs. Hence, as the central bank cuts interest rates, deposit costs are likely to stabilize gradually. Also, USB’s investment portfolio repositioning efforts and less deposit migration will support the metric. For 2024, management expects NII to be in the range of $16.1-$16.4 billion, down from the 2023 level.
Also, solid loan pipelines in the commercial and credit card space will drive loan growth, while stabilizing deposit trends will support deposit growth. U.S. Bancorp has made several strategic acquisitions in the past years, which have opened new markets and fortified existing ones.
Last week, shares of USB lost 5.8%. Investors should keep a note of the company’s latest developments and financial strength to make the right investment decision.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.