Bank Stock Roundup: Capital Plans Get Fed's Nod; Citi & Wells Fargo In Focus

Concerns over the Brexit fallout continued to weigh on the banking stocks, but the major banks witnessed a bullish trend over the last five trading sessions. This was primarily due to the Fed’s approval of the banks’ 2016 capital plans, reflecting stability in the banking system to a great extent.

This news significantly boosted investors’ confidence in the banking stocks. Nevertheless, concerns related to global macro issues remained an overhang.

With macro concerns less likely to ease any time soon, banks will have to undertake more defensive steps to boost profitability. Over the last five days, we saw banks divesting non-core operations to prudently manage business and also expanding into newer areas to expand revenue sources.

(Read: Bank Stock Roundup for the week ending Jun 24, 2016)

Major Developments of the Week

1. The Fed has approved the capital plans of 31 financial institutions out of 33 in the Comprehensive Capital Analysis and Review, following the release of the Dodd-Frank Act supervisory stress test 2016 (DFAST 2016) results last week.

Wells Fargo & Company (NYSE:WFC) , Citigroup Inc. (NYSE:C) , JPMorgan Chase & Co. (NYSE:JPM) , Bank of America (NYSE:BAC) Corporation (NYSE:C) , Fifth Third Bancorp (NASDAQ:FITB), The Bank of New York Mellon Corporation (NYSE:BK) , U.S. Bancorp (NYSE:USB) , The PNC Financial Services Group, Inc. (NYSE:PNC) , Capital One Financial (NYSE:COF) Corporation (NYSE:C) and State Street Corporation (NYSE:STT) are among the major banks that have received clearance from the Fed to raise their dividends and/or repurchase shares. (Read more: Stress Test Results: 31 Banks Rejoice, 2 Fail to Clear)

2. Citigroup inked a deal in continuation with its efforts to boost returns by streamlining operations. The bank is set to sell its institutional Prepaid Card Services to Germany-based payment and issuing company, Wirecard AG. The deal includes transfer of around 120 employees to Wirecard and is expected to close in the fourth quarter 2016, subject to regulatory approvals. (Read more: Citi to Sell Prepaid Card Services as Streamlining Continues).

3. With an aim of increasing market share in commercial lending markets, Wells Fargo completed the acquisition of General Electric (NYSE:GE) Company’s Commercial Distribution Finance (CDF) business in Asia. Notably, Wells Fargo inked the deal with GE Capital, an arm of the Connecticut based company last October.

The acquisition comprised of CDF assets and 46 team members in Asia Pacific markets where Wells Fargo is currently operating. Notably, Australia, The Europe, Middle East and Africa (EMEA) and New Zealand segments closure is likely to take place later this year.

Previously, Wells Fargo has signed an agreement to buy GE Capital’s CDF and Vendor Finance platforms along its Corporate Finance business. In Mar 2016, Wells Fargo completed the acquisition of commercial lending and leasing businesses in North America. Notably, the total purchase includes assets of around $31 billion along with about 2,800 employees.

While the latest deal enhances Wells Fargo’s financial services business, for GE, the move is in line with its efforts to trim down its financial wing and focus more on its core industrial business.

Further, with the recent acquisition of GE Railcar Services from GE Capital, Wells Fargo Rail – the railcar finance, leasing and fleet management business of Wells Fargo – became the largest railcar and locomotive leasing company in North America with over 175,000 railcars and 1,800 locomotives.

Price Performance

Overall, the performance of banking stocks reflected a bullish trend. Here is how the seven major stocks performed:

In the last five trading days, Citigroup and JPMorgan were the major gainers, with their shares increasing 5.2% and 4.3%, respectively. Moreover, Wells Fargo’s shares rose 3.5%.

Bank of America and Citigroup were the worst performers over the last six months with their shares losing 21.6% and 18.8%, respectively. Also, PNC Financial’s shares declined 14.3%.

What's Next in the Banking Space?

Over the next four trading sessions, banking stocks are likely to perform in a similar manner unless any unforeseen event occurs.

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