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Bank Stock Roundup: Rate Hike Expectation Instills Optimism, JPMorgan in Focus

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Major banking stocks moved higher in the last four trading days reflecting optimism in the market. Though regulatory probes are ongoing, steps taken to conclude litigation issues by banks related to their past business conduct has helped regain investors' confidence and reduce legal burden of banks as well.

Moreover, the much anticipated interest rate hike, which is to be decided at the FOMC meeting during Sep 16-17, also seems to be a driving factor for the banking stocks. Primarily, a higher rate will alleviate some pressure on banks' top-line.

Banks are also modifying their work culture and getting electronically inclined as per clients' preferences, which was also prominent in the last four trading days. Notably, JPMorgan Chase & Co. JPM has exited open outcry trading on the London Metal Exchange ("LME") and the company's transfer from Category 1 to Category 2 membership, which permits only electronic and telephone trading, was announced by the exchange.

(Read the last Bank Stock Roundup for Sep 4, 2015 )

Recap of the Week's Most Important Developments:

1. The Commodity Futures Trading Commission ("CFTC") is investigating JPMorgan over the sale and use of proprietary products for its private-banking clients. The CFTC is probing whether JPMorgan made proper disclosures to its private banking clients at the time of steering them toward in-house investment products. The regulator is also probing Highbridge Capital Management LLC, an investment firm owned by JPMorgan (Read more: After SEC, CFTC to Probe JPMorgan for 'Product Steering' ).

2. Massachusetts' chief securities regulator has announced an investigation against The Bank of New York Mellon Corporation BK following a technical glitch at the custodian bank last month. The technical error threw at least 46 investment companies into disarray and in effect impacted hundreds of funds and billions of dollars of assets. In an official statement, Secretary of Commonwealth William Galvin enquired from BNY Mellon and six mutual fund providers about the technology failure in fund accounting that affected individual investors. The firms were asked to outline the actions taken to minimize damage suffered by investors depending on BNY Mellon NAVs for trades (Read more: BNY Mellon under Probe: After-Effects of Technical Glitch? ).

3. BNY Mellon and American International Group, Inc.'s AIG attempts of recovering hundreds of millions of dollars related to foreign tax credits suffered a setback after the U.S. court dismissed their arguments. Both the firms had disputed claims of the transactions being short of economic substance made by the federal government.

While both companies had cried foul on being incorrectly denied foreign tax credits on billion-dollar loan transactions through the Internal Revenue Service ("IRS"), the 2nd U.S. Circuit Court of Appeals' decision to reject these claims by a 3-0 vote indicated their stance that the deals under debate were "most appropriately characterized as shams" under applicable law (Read more: BNY Mellon & AIG Claims Against IRS Dismissed by Court ).

4. JPMorgan is exiting open outcry trading on the London Metal Exchange ("LME"). The company's transfer from Category 1 to Category 2 membership, which permits only electronic and telephone trading, was announced by the exchange in a members' notice. Michael Camacho, head of commodities at JPMorgan, said: "We've given this a lot of thought with the strong tradition and history involved. The reality is that our client preferences have shifted and a very high percentage of our LME contract volumes are now traded electronically." (Read more: JPMorgan to Go All Electronic, Exits LME Outcry Trading )

5. Wells Fargo & Company WFC outlined plans for a perpetual preferred stock offering, in a filing with the SEC. Per the filing, the company will issue a total of 36 million depositary shares with a liquidation preference of $25 per preferred share. As preferred stock is nothing but equity, capital raised from this offering will help the company further improve its leverage ratio, which currently stands at 1.06.

Price Performance

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

Company Last Week 6 months
JPM 1.9% 5.9%
BAC 2.5% 2.2%
WFC 2.5% -0.1%
C 0.9% -0.1%
COF 1.4% -1.4%
USB 1.4% -4.9%
PNC 3.3% -1.5%

In the last four trading sessions, The PNC Financial Services Group, Inc. PNC , Bank of America Corporation BAC and Wells Fargo were major gainers, with their shares increasing 3.3%, 2.5% and 2.5%, respectively. JPMorgan also rose 1.9%.

Over the last six months, JPMorgan and BofA were the top performers, with their shares surging 5.9% and 2.2%, respectively. However, U.S. Bancorp USB slumped 4.9%.

What's Next in the Banking Universe?

We believe bank stocks will continue to perform in a similar fashion in the next five trading days with positive sentiments over the ongoing restructuring efforts.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report

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

AMER INTL GRP (AIG): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

BANK OF NY MELL (BK): Free Stock Analysis Report

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

BANK OF AMER CP (BAC): 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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