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Bank Stock Roundup: Litigations Continues; Wells Fargo, JPMorgan Buckle Up for Q3 Earnings

Major banking stocks moved higher in the last five trading days reflecting optimism in the market. Though regulatory probes are ongoing, steps taken to resolve litigation issues by banks related to their past business conduct has helped regain investors' confidence. Some streamlining activities made headlines too. All these generated optimism about bank financials getting some support going forward.

Further, banks continued to be eco-friendly with Citigroup Inc. C taking the latest move. In its update, the bank revealed plans to cut its funding pipeline to coal mining companies with the concern of global warming caused by the emission of greenhouse gases. The report stated, "Climate change is a global challenge of tremendous magnitude, and Citi is helping to accelerate the transition from a high-carbon to a low-carbon economy."

Against the tough industry backdrop, third-quarter earnings of banks are knocking at the door, which would commence next week with JPMorgan Chase & Co. JPM and Bank of the Ozarks, Inc. OZRK releasing on Tuesday.

(Read the last Bank Stock Roundup for Oct 2, 2015 )

Recap of the Week's Most Important Developments:

1. Fifth Third Bancorp FITB has agreed to resolve civil fraud claims related to mortgage loan practices with the settlement amount of $85 million. The U.S. government alleged that in the period from 2003 and 2013, Fifth Third was engaged in "reckless" origination and underwriting of its Federal Housing Administration (FHA) mortgage loans.

The bank certified that about 1,400 such FHA loans were in compliance with the requirements of the U.S. Department of Housing and Urban Development (HUD) and hence stood eligible for FHA insurance (Read more: Fifth Third Resolves Faulty Mortgage Suit; to Pay $85M ).

2. Wells Fargo & Company WFC has come under the regulatory scanner of the Consumer Financial Protection Bureau ("CFPB"). However, it has been notified that the Wall Street bigwig has been facing CFPB investigation since the past one year. While no particular reason for investigation into Wells Fargo's practices has come forward till now, CFPB is likely to examine the bank's payment processing procedures and steps taken to help distressed borrowers.

Further, whether the investigation will culminate into any enforcement action or settlement remains uncertain. However, an action, if any, will considerably impair the fragmented private student loan market, that likely has less than 10 players.

3. The city of Los Angeles has reportedly dropped its discriminatory lending charges against Citigroup. However, the bank's earlier plea to dismiss the same lawsuit was rescinded by U.S. District Judge - Otis Wright II in June 2014. Though the court filing did not provide clarity on the reason for the dismissal of lawsuit, earlier filings state that lawyers of Citigroup had raised questions over the limited relevance of U.S. Fair Housing Act (the lawsuit claimed violation of FHA) in this matter, since the act was aimed at providing fair housing only.

Notably, Los Angeles had filed a lawsuit against Citigroup in 2013, accusing the bank of engaging in biased lending practices since 2004. The city claimed that the bank provided restricted as well as overcharged (higher fees and interest rates) loan offerings to targeted minority borrowers.

4. In an update to its Environmental & Social Policy Framework, Citigroup revealed that it is set to cut its funding pipeline to coal mining companies. The report stated, "Climate change is a global challenge of tremendous magnitude, and Citi is helping to accelerate the transition from a high-carbon to a low-carbon economy." It further highlighted, "Citi's credit exposure to coal mining companies has declined materially since 2011.

Going forward, we commit to continue this trend of reducing our global credit exposure to coal mining companies." The primary cause of concern related to coal is global warming caused by the emission of greenhouse gases (Read more: Why is Citi Cutting Finance to Coal Mining Companies? ).

5. Regions Financial Corporation RF has collaborated with financial technology or "Fintech" startup, Fundation Group LLC, to diversify its lending base. Regions will now be able to offer its lending products to Fundation Group's online customer base, comprising small businesses. Regions had been looking for a prospective online partner since last year. The search finally ended with Fundation Group, since the company underwrites its own loans, as opposed to certain others like LendingClub Corporation LC that simply matches borrowers to lenders (Read more: Regions Inks Unique Deal to Tap Booming Fintech Industry ).

Price Performance

The overall performance of banking stocks was skewed towards the optimistic side. Here is how the seven major stocks performed:

In the last five trading sessions, Citigroup and The PNC Financial Services Group, Inc. PNC were major gainers, with their shares increasing 3.5% and 3.2%, respectively. Capital One Financial Corporation COF also rose 3.0%.

Over the last six months, JPMorgan and Bank of America Corporation BAC were the top performers, with their shares surging 3.2% and 1.5%, respectively. However, Capital One Financial slumped 5.5%.

What's Next in the Banking Universe?

The focus will be on earnings releases next week. JPMorgan and Bank of the Ozarks are scheduled to kick start earnings on Oct 13, while BofA, PNC Financial and Wells Fargo will report on Oct 14. Further, BB&T Corporation BBT , KeyCorp. KEY , Citigroup and U.S. Bancorp USB will be announcing the results on Oct 15 while SunTrust Banks, Inc. STI and Comerica Incorporated CMA are scheduled to report on Oct 16.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report

BB&T CORP (BBT): Free Stock Analysis Report

REGIONS FINL CP (RF): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

CAPITAL ONE FIN (COF): Free Stock Analysis Report

COMERICA INC (CMA): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

SUNTRUST BKS (STI): Free Stock Analysis Report

KEYCORP NEW (KEY): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

BANK OZARKS (OZRK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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