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Bank Stock Roundup: Positive Development on Trade Front, WFC, JPM & PNC in Focus

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Performance of major bank stocks has been promising over the last five trading sessions. Positive developments on several fronts including the U.S.-China trade conflict and Brexit boosted the stocks.

Also, this resulted in a rise in treasury yields and widening of the spread between long- and short-term rates. Banks will, thus, gain from higher market interest rates as widening spread will support net interest margin – the key indicator of a bank’s profitability.

With expectations of continuation of these favorable developments next year as well, investors were somewhat bullish on bank stocks.

Talking about company-specific headlines, banks continued with their efforts to resolve legacy legal matters. Further, banks are undertaking measures to expand globally and diversify revenues.



(Read: Bank Stock Roundup for the Week Ending Nov 15, 2019)

Important Developments of the Week

1. Wells Fargo (WFC - Free Report) and the City of Philadelphia announced settlement of a discrimination lawsuit filed against the bank in May 2017. Per the terms of the settlement deal, the bank will contribute $10 million for sustainable housing-related programs for low-and moderate-income residents. (Read more: Wells Fargo & City of Philadelphia Resolve Discrimination Suit)

2. JPMorgan (JPM - Free Report) has finally received regulatory approval to set up a majority-owned securities joint venture in China. The banking giant will set up a completely new unit in the country, which will offer brokerage, investment advisory, underwriting and sponsorship services. (Read more: JPMorgan to Set up Majority-Owned Joint Venture in China)

3. 3. Ratings and assessments of PNC Financial (PNC - Free Report) and its banking subsidiary, PNC Bank have been affirmed by Moody’s Investors Service, the rating division of Moody’s Corporation (MCO - Free Report) . The bank’s senior debt has been given A3 rating. Also, the ratings outlook remained stable.

The subsidiary’s deposit rating was Aa2/Prime-1, and the senior and subordinated debts were rated A2 and A3, respectively.

Per Moody’s, PNC Financial generates solid earnings on the back of retail and commercial banking businesses and balanced revenue base. Nearly 57% of the bank’s revenues comprise net interest income, and the rest are generated from various non-interest income sources.

Further, PNC Financial’s direct banking franchise supports financials with a sizable, low-cost core deposit base, healthy liquidity and geographic diversity. Also, the bank’s recently launched retail national expansion strategy bodes well, along with its efforts to fortify presence in untapped markets. The company’s healthy market position and strong treasury management franchise support funding.

Also, PNC Financial’s efforts to conservatively manage loan growth and limit concentration risk have resulted in lower level of net charge-off rate and nonperforming assets, reflecting strong asset quality. Also, the bank has healthy liquidity and capital, indicating a solid balance sheet position.

These factors will help the bank to survive, even in an unfavorable economic environment. Moody's unchanged assessment of the bank's credit profile is reflected in the stable ratings.

Per the rating agency, PNC Financial’s favorable asset risk and liquidity profiles outweigh the decline in capital ratios in the recent quarters. Also, the bank’s strong capital position makes it more resilient to stress compared with its peers. Notably, Moody’s believe that PNC Financial’s 22% stake in BlackRock, Inc. will provide significant capital, when needed.

While PNC Financial’s large investments in technology and digital capabilities were costly and led to average efficiency ratio, such efforts benefited its retail and corporate operations.

PNC Financial’s diverse franchise and strong management team are likely to continue to benefiting it. With this expectation, Moody's kept the bank’s outlook stable. However, with the recently finalized U.S. regulatory tailoring rules, the company will be subject to 85% of the full liquidity coverage ratio requirements. This rule, set to be effective Jan 1, 2020, can hamper the bank’s liquidity profile to some extent.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

0.4%

26.9%

BAC

1.5%

24.9%

WFC

-0.3%

20.0%

C

2.4%

17.4%

COF

-0.9%

15.2%

USB

-0.4%

16.8%

PNC

0.6%

21.7%


Over the last five trading sessions, Citigroup (C - Free Report) and Bank of America (BAC - Free Report) were the major gainers, with their shares rallying 2.4% and 1.5%, respectively. However, shares of Capital One (COF - Free Report) fell 0.9%.

In the past six months, shares of JPMorgan and Bank of America have appreciated 26.9% and 24.9%, respectively. Further, shares of PNC Financial have gained 21.7%.

What’s Next?

Over the next four trading days, performance of bank stocks is likely to remain the same unless any unexpected event occurs.

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