Bank Stock Roundup: Wells Fargo Scam Hits Headlines; BofA, Citi Upbeat On Q3 Market Revenue
Zacks Investment Research | Sep 15, 2016 11:20PM ET
Over the last five trading days, major bank stocks remained under pressure. Among the major negatives that kept investors away from bank stocks, Wells Fargo & Company’s (NYSE:WFC) alleged unauthorized account opening scam dominated the headlines. The company lost its status of being the largest U.S. bank based on market capitalization to JPMorgan Chase & Co. (NYSE:JPM) .
Moreover, a challenging operating backdrop and persistent low-rate environment compelled banks to lower their long-term targets.
Nonetheless, guidance from a few banks point to better investment banking and trading revenues in third-quarter 2016. Gradual market stability across the globe, marginal rebound in oil prices and chances of another rate hike soon are the primary reasons for an upbeat outlook.
Moreover, banks continue to restructure operations with an aim to focus on core businesses and improve efficiency. Further, resolution of litigations and probes related to legacy matters and business misconducts dominated the banking space, as usual.
BANKS-MAJOR REGIONAL Industry Price Index
Wells Fargo to Sell its Fund Administration Unit ).6. BB&T Corporation (NYSE:BBT) has announced an early termination of its loss share agreement with the Federal Deposit Insurance Corp. (FDIC). It had entered the agreement in 2009 through its subsidiary Branch Bank (Branch Banking and Trust Company). The agreement was related to BB&T’s acquisition of selected assets and liabilities of Alabama-based failed Colonial Bank.
The Branch Bank has agreed to pay $230 million in cash to terminate the agreement. Further, FDIC will no longer have a share in future benefits resulting from the covered assets.
Early termination will result in elimination of indemnified assets and liabilities by FDIC, which resulted in a net liability of approximately $210 million at the end of second-quarter 2016.
Pursuant to the termination, BB&T will incur a pre-tax expense of around $20 million during the third quarter. Further, removal of FDIC’s amortization expense that amounted to $124 million for the first half of 2016 will have a positive impact on future earnings. The gain-sharing provision on securities totaling $943 million will also be eliminated.
Further, since BB&T will retain ownership of all related securities, assets and loans, it will solely recognize all future benefits and expenses resulting from those previously covered assets. As of Jun 30, the bank owned $1.7 billion in assets acquired from the agency.
Price Performance
Here is how the seven major stocks performed:
Company | Last Week | 6 months |
JPM | 0.0% | 12.6% |
BAC | -0.4% | 15.5% |
WFC | -5.3% | -7.7% |
C | -0.2% | 10.5% |
COF | -0.9% | 2.4% |
USB | -0.9% | 5.5% |
PNC | 0.4% | 5.3% |
Get The News You Want
In the last five trading sessions, Wells Fargo declined 5.3%, while both Capital One Financial (NYSE:COF) Corporation (NYSE:C) and U.S. Bancorp inched down 0.9%. On the other hand, The PNC Financial Services Group, Inc. (NYSE:PNC) shares edged up 0.4%.
Over the last six months, BofA and JPMorgan were the best performers, with their shares surging 15.5% and 12.6%, respectively. However, Wells Fargo declined 7.7%.
What's Next in the Banking Space?
Over the next five trading days, all eyes will be on the Federal Reserve’s policy meeting on Sep 20–21 for any concrete decision on rate hike. The performance of banking stocks will depend on the outcome of the meeting. Until the outcome is known to the market, marginal volatility is expected.
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