Bank Stock Roundup: Trading Rebound, Lesser Regulations & Wells Fargo

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Over the last five trading days, performance of banking stocks remained optimistic. Rebound in trading activities (after dismal 2017 performance) is perhaps the primary reason for this bullish price performance.

Banks like Citigroup C and JPMorgan JPM expect trading revenues to improve in first-quarter 2018. This is likely to be driven by solid revenues in foreign exchange, emerging markets and equities trading. Specifically, Citigroup expects "low-to-mid" single digit year-over-year increase in trading revenues and JPMorgan projects market revenues to rise in mid-to-high single-digit rate from the prior-year quarter.

Additionally, progress in rolling back parts of the Dodd Frank Act cheered investors. The Senate is working on a bipartisan banking bill expected to lower stringent banking regulations. This will likely reduce regulatory compliance cost for several banks.

On the other hand, mortgage rates continued to rise, with 30-year mortgages averaging 4.46% (marking the ninth consecutive weekly increase). The rise seems to be attributable to chances of rate hike later this month and impending trade war following the imposition of tariffs. This steady rise in mortgage rates will limit refinancing activity, thereby hurting banks mortgage banking revenues to some extent.

Coming to company-specific news related to banks, business misconducts continued to dominate headlines for Wells Fargo WFC .

(Read: Bank Stock Roundup for the week ending Mar 2, 2018 )

Important Developments of the Week

1. William Galvin, the top securities regulator of Massachusetts, announced that his office has started investigating the wealth management arm of Well Fargo to see if the division has been steering rollover money into managed accounts or if its employees have been making investment recommendations to clients that are unsuitable for them according to their needs.

This investigation comes almost a week after Wells Fargo, in its 10K filling revealed that it was conducting an internal review to assess whether there had been unjustified referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments and referrals of brokerage customers to the bank's investment and fiduciary services business.

Wells Fargo had agreed to do a detailed investigation only after facing inquiries from the financial regulators in late 2017 for forcing customers to buy products and services they did not require.

The bank did find that in some cases customers had been overcharged fees in connection with certain assets and accounts. There have been issues of incorrect set-up and maintenance in the system of record of the values associated with certain assets.

However, Wells Fargo has not yet determined the number of accounts that were affected along with the reason that led to the wrongdoing.

Shea Leordeanu, a spokeswoman for the bank's brokerage division, recently said in a statement that the bank has made "significant progress in our work to identify and fix any issues, make things right and build a better, stronger company."

Thus, Galvin said that his office was seeking information about the scope of Wells Fargo's investigation. They have asked the bank to give them information regarding "inappropriate referrals of brokerage customers to managed and advisory accounts, unsuitable recommendations of alternative investments, as well as unsuitable referrals and recommendations in connection with 401(k) rollovers."

Galvin said, "Given the recent retirement savings crisis in America, referrals and recommendations involving 401(k) accounts should be closely scrutinized, in light of the Department of Labor's Fiduciary Rule."

2. Bank of America BAC is planning to add nearly 600 new jobs at its offices in Hunt Valley. These will primarily be call centers and staff support related jobs. (Read more: BofA Plans to Add 600 Call Center Jobs in Hunt Valley )

3. Kelly Stuart King, chairman and chief executive officer of BB&T Corporation BBT , received a total of $12.67 million as annual compensation for 2017. The payout amount, disclosed by the bank in a regulatory filing, reflects a 9.1% rise on a year-over-year basis. The compensation hike comes after the company delivered strong 2017 results. (Read more: BB&T Raises CEO King's 2017 Compensation by 9.1% )

Price Performance

Here is how the seven major stocks performed:

Company Last Week 6 months
JPM 1.3% 31.2%
BAC 1.8% 41.8%
WFC -1.2% 15.9%
C 0.6% 12.9%
COF 1.5% 26.6%
USB 1.0% 9.1%
PNC 1.3% 32.7%

In the last five trading sessions, BofA and Capital One Financial Corp. COF were the major gainers, with their shares gaining 1.8% and 1.5%, respectively. On the other hand, Wells Fargo fell 1.2%.

BofA and PNC Financial PNC were the best performers over the last six months, with their stock prices surging 41.8% and 32.7%, respectively. Also, shares of JPMorgan rallied 31.2%.

What's Next?

Over the next five trading days, banking stocks are expected to continue performing in a similar manner.

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JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

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

The PNC Financial Services Group, Inc (PNC): Free Stock Analysis Report

Wells Fargo & Company (WFC): Free Stock Analysis Report

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Capital One Financial Corporation (COF): 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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