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Bank Stock Roundup: Trade War Discourages Investors, WFC & Citi in Focus

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Over the last five trading days, bank stocks have put up a lackluster show. Mortgage rates declined in the week, hitting 4.57%, along with bond yields, on escalating U.S.-China trade war fears.

Further, the benchmark 10-year Treasury yield shrunk during this week, as demand for safe-haven assets increased.

On the other hand, on Thursday, the Federal Reserve released the Dodd-Frank Act supervisory stress test 2018 (DFAST 2018) results, which, to a great extent, reflect stability in the banking system. In fact, this reaffirms that the U.S. banking giants are adequately capitalized to survive under a tremendously difficult economic scenario.

All bank holding companies (BHCs), including certain U.S. units of foreign banks with $50 billion or more in total consolidated assets, have passed the first round of test.

Nevertheless, coming to company-specific news, litigations and probes pertaining to the past shoddy activities dominated headlines. The law enforcement agencies are also on track to resolve such issues, avoiding lengthy litigations. Moreover, restructuring activities of banks continued with the target of improving operational efficiency.

 


 

(Read: Bank Stock Roundup for the Week Ending Jun 15, 2018)

Important Developments of the Week

1. Resolution to past misconducts related to interest rate rigging continues for banks. Recently, the U.S. Commodities Futures Trading Commission (“CFTC”) charged JPMorgan (JPM - Free Report) with $65-million penalty for trying to manipulate ISDAfix rates — the benchmark rate for fixed interest rate swap rates — between 2007 and 2012. Per the CFTC, employees at JPMorgan made false reports and attempted to manipulate the reference rate by “bidding, offering, and executing transactions in targeted interest rate products” during the five-year period. (Read more: JPMorgan to Pay $65 Million as Swap Rate Manipulation Charge)

Among others, Citigroup (C - Free Report) has agreed to resolve a lawsuit that accused it of rigging London Interbank Offered Rate (LIBOR). The interest-rate manipulation by the banking giant had affected trillions of dollars of financial instruments. The company will be paying a combined fine of $100 million to settle the case. Citigroup had been accused by around 42 states for its fraudulent act against government and non-profit entities. (Read more: Citigroup Resolves LIBOR Manipulation Probe, To Pay $100M)

2. Major banks continue with their streamlining activities to improve operational efficiency. Of late, Wells Fargo (WFC - Free Report) has been making plans to merge its Wealth Brokerage Services and Private Client Group, as these divisions are dedicated to serving high-end customers. The move is aimed at improving efficiency of the wealth management segment. (Read more: Wells Fargo Plans to Streamline Wealth Management Unit)

With a view to improve the bank’s operations, Wells Fargo has expanded its asset management unit’s product offerings to include private credit for middle-market companies. Per Kristi Mitchem, CEO of Wells Fargo Asset Management (“WFAM”), debt offering to middle-level corporate clients is a key strength for the bank. The banking giant is poised to benefit from this expansion and tap a larger share of middle-market corporate clients. (Read more: Wells Fargo Asset Management Unit Taps Into Private Credit)

3. Fifth Third (FITB - Free Report) recently retrenched a number of employees in the Cincinnati region. The bank’s spokesperson mentioned no specific reason for the job cuts. The company undergoes an employee level review program on a periodic basis in order to determine if the current staff level matches market demand and the bank’s operating scenario. Through this review system, Fifth Third remains successful in maintaining efficiency levels.

4. Fifth Third raised its quarterly common stock dividend by about 12.5% to 18 cents per share. The dividend will be paid on Jul 16 to shareholders of record as of Jun 29, 2018. Fifth Third’s robust business model reflects the company’s commitment toward returning value to shareholders with its strong cash-generation capabilities. (Read more: Fifth Third Declares 12.5% Dividend Hike: Time to Buy?)

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-0.4%

0.7%

BAC

0.0%

-1.0%

WFC

-1.1%

-10.6%

C

1.9%

-10.0%

COF

-2.1%

-3.4%

USB

-0.8%

-5.4%

PNC

-1.8%

-2.4%



Over the last five trading sessions, Capital One Financial (COF - Free Report) and PNC Financial (PNC - Free Report) were the major losers, with their shares declining 2.1% and 1.8%, respectively. However, shares of Citigroup inched up 1.9%.

In the past six months, shares of Citigroup and Wells Fargo have dropped 10% and 10.6%, respectively. Moreover, shares of U.S. Bancorp (USB - Free Report) declined 5.4%.

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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