Over the last five trading days, banking stocks witnessed some recovery. Though Wells Fargo & Company (WFC - Analyst Report) was in focus for its wrongdoings, it seems that the gradually improving operating environment encouraged the investors.
Banks have been expanding their market share and revenue sources through acquisitions as low-rate environment is not expected to reverse anytime soon. Also, the ongoing economic recovery is expected to lead to a rise in demand for loans, thereby supporting top line to some extent.
Further, over the last five trading sessions, big banks, including Wells Fargo, Bank of America Corp. (BAC - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report) submitted their revised ‘Living Wills’ to the banking regulators, the Federal Reserve and the Federal Deposit Insurance Corp. (“FDIC”). This indicates that these banks have rectified the problems identified by the regulators in April.
In addition, resolution of litigations and probes related to legacy matters and business misconducts dominated the banking space, as usual.
(Read: Bank Stock Roundup for the week ending Sep 16, 2016)
Important Developments of the Week
1. Wells Fargo, that once earned admiration for steering well through the onslaughts of the 2008 financial meltdown, seems to face a bigger crisis now, following its sales scandal which cropped last month. In the latest fallout from the scam, the state of Illinois has suspended $30 billion in investment activity with the bank for “predatory and illegal banking practices” (read more: WWells Fargo Loses Illinois State Business in Latest Setback).
Further, the Chicago City Council, with support from Mayor Rahm Emanuel, agreed to suspend business relations with Wells Fargo. Hence, the company will be prohibited from receiving city deposits, underwriting bond issues and brokering services on the city’s behalf. Also, it would be disallowed from serving as a financial advisor or a trustee in any loan or redevelopment agreement (read more: Wells Fargo Suspended by Chicago over Sales Scam)
Additionally, Wells Fargo’s credit outlook has been cut from ‘Stable’ to ‘Negative’ by Fitch Ratings Inc. The rating agency stated that the cut highlights the potential damage to the bank’s reputation and earnings profile owing to recent regulatory actions and fines (read more: Fitch Cuts Wells Fargo's Outlook to Negative, Affirms Rating).
2. In other news pertaining to Wells Fargo, the company announced closure of deal to acquire the Europe, Middle East and Africa (EMEA) segment of GE Capital’s Commercial Distribution Finance (CDF) business. Nine offices and 163 team members in markets across Europe, including Belgium, Finland, France and Germany, will join the company (read more: Wells Fargo Closes Purchase of GE's CDF Business in EMEA).
3. Capital One Financial Corp. (COF - Analyst Report) has entered into a definitive agreement to acquire the credit card operations from Cabela's Inc. This acquisition will include about $5.2 billion in credit card receivables and other assets, and around $5 billion in related funding liabilities. Notably, the credit card operations will be obtained for par value of the credit card receivables, less the par value of assumed liabilities (read more: Capital One to Acquire Credit Card Operations of Cabela's).
4. Citigroup Inc. (C - Analyst Report) has announced its plans of investing more than $1 billion in its Mexican unit, Banco Nacional de México or Banamex, which will be renamed as Citibanamex. The investment is expected to be completed by 2020 and will improve digital tools, ATMs and branches (read more: Citigroup to Invest $1B More in Mexican Unit).
5. Amid heightened regulatory and political scrutiny on banks' ownership of the physical commodity business, the latest dismissal of an antitrust lawsuit brings relief for The Goldman Sachs Group, Inc. (GS - Analyst Report) , JPMorgan and mining company – Glencore Plc (GLNCY - Snapshot Report) . The U.S. District Judge – Katherine B. Forrest – dismissed the nationwide suit by aluminum purchasers. The suit alleged the defendants of conspiring to hoard aluminum to push up prices, per a Reuters report (read more: Goldman, JPM, Glencore Aluminum Price-Fixing Suit Tossed).
Here is how the seven major stocks performed:
In the last five trading sessions, shares of Citigroup rose 3.9%, while BofA was up 3.6%.
Over the last six months, BofA and Citigroup were the best performers, with their shares surging 22.2% and 17.2%, respectively. However, Wells Fargo declined 7%.
What's Next in the Banking Space?
Some banks are scheduled to report Q3 earnings in the next five trading days. While Bank of the Ozarks, Inc. (OZRK - Analyst Report) will be reporting on Oct 11, JPMorgan, Citigroup, Wells Fargo and The PNC Financial Services Group, Inc. (PNC - Analyst Report) are coming up with their results on Oct 14.
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