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Bank Stock Roundup: Fed Minutes, Q1 Earnings, Wells Fargo and OZRK Dominate

Zacks

Over the last five trading days, performance of banking stocks was encouraging. The primary highlight was the release of the Fed minutes of the March FOMC meeting.

The latest Fed minutes indicate that the officials are optimistic about the improving economic growth and rise in inflation. This is expected to support a more aggressive stance by the Fed in hiking rates.

The release of the minutes led to overall positivity in the markets and bank stocks didn’t remain untouched. Apart from this, easing U.S.-China trade war tension cheered investors to some extent.

Banks’ first-quarter earnings were also in the spotlight over the past five trading sessions. This time, earnings are expected to be impressive driven by rebound in trading activities and higher interest rates. Also, modest loan growth will likely support results.

Taking about company-specific headlines, as usual Wells Fargo WFC dominated for all the wrong reasons. Other than that, banks continued with the restructuring efforts with an aim to expand operations and control expenses.



(Read: Bank Stock Roundup for the week ending Apr 6, 2018)

Important Developments of the Week

1. For Wells Fargo, there seems to be no end to troubles. Now a teacher’s union, The American Federation of Teachers, is demanding the bank to restrain itself from providing finance to gun dealers and the National Rifle Association. The union disclosed plans to discontinue the Wells Fargo mortgage program offering to members if the bank fails to take an appropriate action. (Read more: Wells Fargo Rejects Union Demand to Act Against Gun Dealers)

Nonetheless, another banking giant, Bank of America BAC intends to stop providing loans to companies manufacturing “military-style firearms” for common public. In an interview with Bloomberg, the company’s vice chairman, Anne Finucane stated that the bank is in talks with a few military-style firearms manufacturers.

She said, “We're in discussion with them. We have let them know that it's not our intent to underwrite or finance military-style firearms on a go-forward basis.”

2. In yet another news related to Wells Fargo, per a Reuters article, the bank is likely to face penalty as large as $1 billion due to its wrongdoings in auto insurance and mortgage lending business by the Consumer Financial Protection Bureau. (Read more: Wells Fargo Might Be Hit With Massive Fine by Regulator)

3. With an aim to further expand its insurance operation, BB&T Corp. BBT through its wholly owned subsidiary, BB&T Insurance Holdings, Inc., has announced a deal to acquire Regions Insurance Group. The financial terms of the transaction, expected to close in third-quarter 2018, were not disclosed. Following the completion, the company’s annual insurance brokerage revenues will likely increase to roughly $2 billion. (Read more: BB&T Expands Insurance Business, to Buy Unit From Regions)

4. In other news related to BB&T, the bank will be closing its corporate call center in Allentown by mid-June. This is part of the company’s strategy to trim its footprint, which was extended by the acquisitions of Susquehanna Bancshares and National Penn Bancshares. The operations at Allentown call center will get transferred to BB&T’s other call centers.

BB&T said in a statement said, “This is part of BB&T’s ongoing effort to evaluate our operations in a highly competitive marketplace. As part of this process we’re becoming a more efficient company in some areas and adding resources in others. After careful consideration we’ve decided to close our corporate client care center in Allentown.”

The closure of the call center has also resulted in elimination of 50 jobs. BB&T further added that affected staff will get help in searching for job opportunities inside and outside the company as well as have access to career transition services and severance packages.

5. Bank of the Ozarks, Inc.’s OZRK first-quarter 2018 earnings per share of 88 cents surpassed the Zacks Consensus Estimate of 85 cents. The figure also represents improvement of 20.5% on a year-over-year basis.

Results primarily benefited from an improvement in net interest income, driven by higher interest rates. Also, loans and deposit balances improved, which supported results to some extent. However, higher expenses, lower non-interest income and an increase in provisions were the undermining factors.

Price Performance

Here is how the seven major stocks performed:

Company

Last Week


6 months

JPM

3.9%

19.3%

BAC

3.4%

21.4%

WFC

0.9%

-3.3%

C

5.1%

0.5%

COF

2.3%

15.6%

USB

1.9%

-4.0%

PNC

3.6%

14.5%


In the last five trading sessions, Citigroup and JPMorgan JPM were the major gainers, with the banks’ shares gaining 5.1% and 3.9%, respectively. Additionally, shares of PNC Financial rallied 3.6%.

BofA and JPMorgan were the best performers over the last six months, with the stocks appreciating 21.4% and 19.3%, respectively. However, U.S. Bancorp and Wells Fargo slipped 4% and 3.3%, respectively.

What’s Next?

In the coming five days, the focus will solely be on earnings releases. BofA and M&T Bank Corp. are reporting on Apr 16, while Comerica Inc. CMA and U.S. Bancorp will release results on Apr 17.

The Bank of New York Mellon Corp. BK, BB&T and KeyCorp will be coming out with their numbers on Apr 19. Therefore, performance of banks will largely depend on financial results.

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