Over the last five trading days, major banks rallied on rising bond yields. The 30-year bond yield climbed to 3.320%, the highest since September 2014, as its price fell. Further, 10-year Treasury note yield increased to 3.2%, reaching its highest level since July 2011.
Rising interest rates and bond yields drive banks’ net internet margins, which are expected to improve profitability in the quarters ahead. Further, given the growth in economy, low unemployment rate and healthy consumer sentiment, the demand for loans and other related products are expected to rise.
Talking about company-specific headlines, banks continued with restructuring and streamlining initiatives. These efforts are expected to attract more business and support revenue growth. Moreover, resolution of probes and lawsuits related to legacy matters continued along with strong capital deployment activities.
(Read: Bank Stock Roundup for the Week Ending Sep 28, 2018)
Important Developments of the Week
1. Legal hassles continue for banks. Wells Fargo (WFC - Free Report) is struggling to satisfy one of the regulators — Joseph Otting — on the reimbursements to clients who were wronged in auto insurance and mortgage lending business scandals. At a hearing, Otting, chief of the Office of the Comptroller of the Currency (“OCC”) told senators, “We are not comfortable where we are with them.” In September 2018, the Consumer Financial Protection Bureau and OCC rejected the plan Wells Fargo had submitted related to the massive $1 billion fine imposed on it for the auto lending and mortgage fraud. (Read more: Wells Fargo Struggles to Satisfy OCC With Reimbursement Plan)
2. JPMorgan (JPM - Free Report) recently announced that it plans to expand in the New England region. This is part of the company’s initiative to expand into 15-20 new markets, which was announced in January 2018. The bank will be opening at least 60 retail branches, 130 ATMs and hire nearly 350 new employees in the region by the end of 2023. (Read more: JPMorgan to Expand in New England Region, Open 60 Branches)
3. The PNC Financial Services Group (PNC - Free Report) is taking steps to match the growing need for digital modes of banking and cope with increasing competition. Moreover, the bank is launching a high-yield savings account for customers who reside in areas where PNC Financial is expanding — Kansas City and Dallas. (Read more: PNC Enters Dallas Market, Lures Customers With Higher Rates)
4. In order to fortify its regional presence, Citigroup (C - Free Report) is planning to propel offshore booking center in the United Arab Emirates. The bank had applied for a banking license last year in Saudi Arabia and is working to get the same, in a bid to capitalize on the country’s financial reforms. Atiq Rehman, Citi's chief executive of the Middle East and Africa, stated that this region is likely to record growth above the market average of 4% in 2018 and 2019, positively impacted by both countries. (Read more: Citi Strategizes to Propel UAE's Offshore Booking Center)
5. Bank OZK’s (OZK - Free Report) board of directors approved a hike in quarterly dividend. The company announced a dividend of 21 cents, marking an increase of 5% from the prior payout. The dividend will be paid on Oct 19 to shareholders of record as of Oct 12. This is the 33rd consecutive quarterly dividend increase by the bank. (Read more: Bank OZK Hikes Dividend: Is the Stock Worth a Look?)
6. Marking a comeback in the private mortgages market, Wells Fargo is working on a $441 million mortgage bond without government guarantee along with an AAA rating. The bond’s sale is likely to be finalized soon. This major bank will be offering such a bond for the first time since the financial crisis.
Here is how the seven major stocks performed:
Over the last five trading sessions, Bank of America (BAC - Free Report) and JPMorgan were the major gainers, with their shares increasing 3.3% and 2.9%, respectively. Moreover, shares of PNC Financial rallied 2.2%.
In the past six months, shares of U.S. Bancorp (USB - Free Report) and Citigroup have gained 7.3% and 5.9%, respectively. However, shares of PNC Financial have declined 7.7%.
In the coming week, the focus will solely be on earnings releases. Some big banks are scheduled to report third-quarter earnings in the next five trading days. JPMorgan, Citigroup, Wells Fargo, PNC Financial and First Republic Bank (FRC - Free Report) are scheduled to release quarterly figures on Oct 12.
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