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Bank Stock Roundup: Pause on Rule Easing, Business Expansion, C, JPM, WFC in Focus

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Over the last five trading days, performance of bank stocks reflected a pessimistic stance as broader markets witnessed negative investor sentiments over a number of issues. Some of these matters have direct bearings on banks’ financial performance.

Maxine Waters, who will be taking over as chair of the House Financial Services Committee in January 2019, said that easing of banking regulations will come to a stop. At a Congressional hearing, Waters said, “Make no mistake, come January, in this committee the days of this committee weakening regulations and putting our economy once again at risk of another financial crisis will come to an end.”

Notably, following the financial crisis, the banking industry faced stringent regulations, which have been gradually easing since early this year following the passage of the Crapo Act. The Federal Reserve has been planning to further relax rules for major banks. So, the comments related to stopping of further easing of banking regulations hurt investor sentiments and dragged Financial Select Sector SPDR (XLF - Free Report) and SPDR S&P Regional Banking ETF (KRE - Free Report) lower.  

Additionally, a not so favorable Brexit deal, impending slowdown in global economic growth, fall in oil prices and strong dollar hurt investor sentiments over the past five trading sessions.

On the other hand, improving economy (given the favorable economic data), gradually easing trade war fears and increasing chances for the Fed rate hike next month support banks. Also, investments by Warren Buffet’s Berkshire Hathaway Inc. in the major banks reflect long-term growth expectations for the industry.

Now coming to the company specific developments, banks continued with their business expansion strategy. These efforts will further support revenues.

(Read: Bank Stock Roundup for the Week Ending Nov 9, 2018)

Important Developments of the Week

1. Citigroup (C - Free Report) might seek an option of increasing majority stake in its Chinese securities venture, per a Bloomberg report. This move follows China’s securities regulator — the China Securities Regulatory Commission — lessening restrictions on foreign ownership of majority control. Hence, to explore opportunities in equities and fixed-income trading operations in China as well, the bank targets to raise stake to 51%, up from the existing 33% in its Citi Orient Securities Co Joint venture. (Read more: Citigroup May Boost Majority Stake to 51% in China JV)

2. In sync with its plan to expand into new markets, JPMorgan (JPM - Free Report) announced that it has opened its first retail branch in Greater Washington, DC. Also, the bank made several declarations related to investments in the region with an aim to further improve regional economy. By this year end, five more branches will come up in Greater Washington and the company plans to hire nearly 80 new employees. (Read more: JPMorgan Opens Washington DC Branch, Unveils Other Plans)

3. Wells Fargo (WFC - Free Report) plans to cut nearly 1,000 jobs in its consumer lending and payments, and virtual solutions units. The news was first reported by Reuters.

This is part of the company’s larger workforce reduction plan that it had announced earlier this year. Per the plan, the bank will be lowering headcount by up to 10% by 2020 in order to streamline operations.

Notably, majority of the employees who are to lose their jobs have received 60-day notices. Some of them who have only received pre-notices till now will get a 60-day notice sometime next year.

Of the total cuts, nearly 900 are in Wells Fargo’s home lending unit. It reflects decreases in the total volume of applications as well as the number of customers in default.

While these job cuts are expected to be spread across the entire United States, most of them will be concentrated in Des Moines, Iowa as it is expected to witness nearly 400 layoffs. Almost 111 cuts are expected to take place in Fort Mill, South Carolina.

Tom Goyda, a spokesman for the company stated, “We are committed to retaining as many team members as possible and will do everything we can to help them identify other opportunities within Wells Fargo.”

Ultimately, these job cuts will help the bank reach its final goal of eliminating $4 billion of expenses by 2020. Apart from this, the bank, in order to become more efficient has plans to reduce its branch count by about 800 by 2020 and sell the non-core businesses.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-1.1%

-1.4%

BAC

-2.2%

-9.8%

WFC

-0.4%

-2.0%

C

-1.8%

-9.9%

COF

-1.4%

-5.0%

USB

2.8%

8.3%

PNC

1.8%

-8.0%


Over the last five trading sessions, U.S. Bancorp (USB - Free Report) and PNC Financial (PNC - Free Report) were the major gainers with their share price increasing 2.8% and 1.8%, respectively. On the other hand, shares of Bank of America (BAC - Free Report) and Citigroup declined 2.2% and 1.8%, respectively.

In the past six months, shares of U.S. Bancorp have appreciated 8.3%. However, shares of Citigroup and Bank of America have lost 9.9% and 9.8%, respectively.

What’s Next?

Over the next five trading days, performance of bank stocks will likely remain the same unless any unexpected event occurs.

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