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Bank Stock Roundup: Trump Effect Makes Headlines, Citigroup in Focus

JPM PNC WFC C BAC

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Over the last five trading days, major banks depicted a bullish trend. After Donald Trump’s victory, investors’ confidence received a boost on expectations of reduction in banking regulations, federal corporate tax rate cut stimulating domestic investments and a Fed rate hike in December.

Further, following the presidential election, mortgage rates were on an upswing, hitting a 10-month high of 3.94%, as money was pulled out of the bond market. Moreover, yields on 10-year Treasuries have climbed more than 35 basis points since the election results, as investors anticipate Trump’s policies to stimulate economic growth and inflation.

However, homeowners seeking lower rates for refinancing are definitely big-time losers. Increase in mortgage rates will limit refinancing activity. According to the Mortgage Bankers Association, refinancing has been decreasing since July. Notably, an index of refinancing applications declined 11% at the end of last week to the lowest level since March.

New data reflects that the U.S. economy is getting better. Though higher borrowing costs might disappoint homebuyers, an improving job market might lead to rise in housing demand.

Overall, the focus has shifted from earnings to banks' strategies in boosting profitability through restructuring and acquisitions, in the last five trading days.

(Read: Bank Stock Roundup for the week ending Oct 28, 2016)
 

Banks - Major Regional Industry Price Index

Banks - Major Regional Industry Price Index

Important Developments of the Week

1. Post Brexit, Citigroup Inc. (C - Free Report) is formulating the relocation of up to 900 jobs from London to Dublin. This is part of the company’s contingency plan to deal with the growing uncertainties of Brexit. Citibank conducted a board meeting in Dublin last month and was trying to explore options for office space in the Irish capital. Per the UK head of Citi, regardless of what deal Britain will enter into for access to the financial services market in the European Union, jobs in London will be shifted to other countries. Notably, the UK Citi has 9,000 employees (read more: Citigroup to Relocate 900 Jobs from London to Dublin).

2. According to John Gerspach, Chief Financial Officer (CFO) of Citigroup, the U.S. lender might need to record $12 billion charge in profits if the federal corporate tax rates under President Donald Trump decline to 25% from the current rate of 35%. However, such charge can be around $4 billion if the rate reduces to 28% under a scenario where tax cuts are applied on more limited basis. Such charge will be recorded to reflect reduced values for the bank’s deferred tax assets (DTAs). Notably, about $7 billion of the DTAs are excluded from the bank's regulatory capital. Therefore, write off of more than this amount would impact the regulatory capital (read more: Citigroup Might Record $12B Charge on U.S. Tax Rate Cut).

3. Citigroup entered into an agreement to sell CitiFinancial, its subprime lending unit in Canada, to an investor group led by private investment firm, JC Flowers and Varde Partners. This is part of Citigroup’s strategy to emphasize on growth in core businesses through restructuring, expense management and streamlining operations internationally. The divestiture is subject to regulatory approvals and is anticipated to close in the first half of 2017. Moreover, the amount for the sale remained undisclosed. This transaction is not likely to affect Citi’s financials.

4. Putting an end to almost a three-year old investigation, related to alleged violation of the Foreign Corrupt Practices Act (FCPA), JPMorgan Chase & Co. (JPM - Free Report) has agreed to pay $246 million in aggregate to the U.S. regulators. The bank was accused of hiring the relatives of Chinese officials, with an aim to win banking deals. Of the total fine, the U.S. Securities and Exchange Commission (SEC) will get $130 million, the Department of Justice (DOJ) will receive $72 and the remaining amount will go the U.S. Federal Reserve. Notably, JPMorgan did not accept or deny any of the charges. Nonetheless, as part of its deal with the DOJ, a Hong Kong unit of the company acknowledged making quid pro quo hiring agreements with Chinese officials to secure businesses.

5. The scandal ridden U.S. banking giant, Wells Fargo & Company (WFC - Free Report) faces another blow following exposure of the fraudulent sales scandal, this time striking its retail banking customer activity in October. The bank witnessed a yearly plunge of 44% in new account openings, along with a sequential fall of 27%. As expected, the decline was chiefly due to the full-month impact of customers’ reaction to the sales malpractices settlement announced on Sep 8, 2016, and lower marketing activities.

Price Performance

The overall performance of banking stocks depicted a bullish stance. Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

1.7%

26.5%

BAC

5.6%

43.3%

WFC

1.5%

10.2%

C

5.0%

26.9%

COF

0.7%

18.5%

USB

1.6%

19.5%

PNC

4.4%

29.8%



In the last five trading sessions, Bank of America Corp. (BAC - Free Report) and Citigroup were the major gainers, with their shares increasing 5.6% and 5.0%, respectively. Moreover, PNC Financial Services Group, Inc. (PNC - Free Report) shares increased 4.4%.

BofA and PNC Financial were the best performers in the last six months, with their shares surging 43.3% and 29.8%, respectively. Moreover, Citigroup’s shares jumped 26.9%.

What's Next in the Banking Space?

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

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