Bank Stock Roundup: Fed Hints At Rate Hike, JPMorgan & BofA In Focus

Major banking stocks have been optimistic over the last five trading days on possibilities of an interest rate hike in June, as per minutes (released this week) of the Federal Open Market Committee (FOMC) meeting in April.

"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee's 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to the minutes.

An interest rate hike will aid top-line expansion for banks, making way for improved results in the second quarter.

Introduction of digital technology has always remained a cost-effective method for banks. Further, increasing competition from financial technology firms (FinTech) is compelling banks to digitalize banking operations. Therefore, financial institutions are planning to roll out cardless ATM technology, with Bank of America Corp (NYSE:BAC). (NYSE:C) leading the way.

Such possible ways help in enhancing customer experience, lower expenses and improve profitability.

Further, steps taken to conclude litigation issues pertaining to their past business conduct were prominent. Meanwhile, the law-enforcement agencies are trying to resolve such issues in order to avoid lengthy litigations.

(Read: Bank Stock Roundup for the week ending May 13, 2016)

Important Developments of the Week

1. Banks continue with restructuring activities. Recently, Citigroup Inc. (NYSE:C) sold certain assets of its electronic market-making unit – Automated Trading Desk Financial Services, LLC (ATD) – to Chicago-based Citadel Securities. Terms of the transaction remain undisclosed. In connection to the transaction, Jamil Nazarali, Head of Citadel Execution Services stated, "This acquisition supports the growth of our industry-leading equities business and reflects our commitment to leveraging our global footprint, cutting-edge technology and trading expertise to meet the diverse needs of our clients as traditional providers continue to exit this space.” (read more: Citi Sells Assets of Automated Trading Desk to Citadel)

2. BB&T Corporation (NYSE:BBT) will be closing and consolidating 28 branches as part of its deal to buy Allentown, PA-based National Penn Bancshares Inc., which was completed in Apr 2016. The announcement of this $1.8 billion worth stock-and-cash transaction was made by the bank last August. However, there will be no layoffs due to the closure of branches, which will take place during the scheduled systems conversion in July. Susquehanna and National Penn deals are not only expected to prove accretive to BB&T’s earnings in the first full year of the respective acquisitions, but will also result in annual cost savings of $160 million and $65 million, respectively (read more: BB&T to Shut & Consolidate 28 Units Following Two Buyouts).

Recently, as part of its National Penn Bancshares Inc. integration process, BB&T will be cutting 241 jobs in Pennsylvania. This announcement has no direct link with the company’s plan to consolidate 28 branches in the same state. With the job cuts likely to be completed in 60 days, BB&T has already begun the process of informing the affected employees. The company intends to complete the integration of National Penn by mid-July (read more: BB&T to Cut 241 Jobs in Pennsylvania: Further Slash Likely?).

3. BofA, at the Google (NASDAQ:GOOGL) IO conference in California, announced the expansion of its cardless technology to 5,000 ATM across the country by this year end. Initially BofA will be rolling out its cardless ATM technology at 2,400 ATMs beginning this month. Notably, majority of the ATMs in the San Francisco and Silicon Valley areas will become cardless-enabled ATMs. Apart from BofA, Wall Street biggies – Wells Fargo & Company (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) – are planning to offer similar facilities to their customers by the end of this year.

4. Issues pertaining to the pre-crisis business conducts, especially related to the sale of toxic mortgage securities, continue to trouble major global banks. A divided federal appeals court in New York revived a Federal Deposit Insurance Corp. (“FDIC”) lawsuit related to the 2009 failure of Colonial BancGroup Inc against 11 banks. The lawsuit accused these banks, which included Credit Suisse (SIX:CSGN) Group AG (NYSE:C) , Citigroup, JPMorgan, Wells Fargo, First Horizon National Corporation (NYSE:FHN) , Deutsche Bank AG (DE:DBKGn) (NYSE:DB) and others, of triggering the collapse of Colonial by selling or underwriting toxic mortgage-backed securities.

5. On the other side, banks continue to reduce litigation overhangs. Recently, in a major relief to JPMorgan, U.S. District Judge John Koeltl dismissed an investor suit pertaining to losses over Bernard Madoff's Ponzi scheme. According to the federal judge, the plaintiffs failed to show that JPMorgan had specific control over Madoff's fraudulent activities. The lawsuit was filed on behalf of around 2,500 "net winners" who withdrew more money from their accounts at Bernard L. Madoff Investment Securities LLC (“BLMIS”) than they invested. According to their claims, JPMorgan was “actively complicit” in its conduct and failed to end its relationship with Madoff despite his fraudulent and suspicious activities (read more: Respite for JPMorgan: Lawsuit over Madoff Fraud Dismissed).

6. Banks are on the way to reward shareholders. Recently, JPMorgan declared a quarterly cash dividend of 48 cents per share, representing more than 9% rise over the prior payout. The dividend will be paid on Jul 31 to shareholders of record as of Jul 6. The dividend increase was part of JPMorgan’s 2015 capital plan (read more: JPMorgan Ups Dividend: Right Time to Own the Stock?).

Another major bank, KeyCorp. (NYSE:KEY) , declared a quarterly cash dividend of 8.5 cents per share, representing a 13% hike. The dividend will be paid on Jun 15 to shareholders of record as of May 31.

Price Performance

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

In the last five trading sessions, BofA and Citigroup were the major gainers, with their shares increasing 4.7% and 4.5%, respectively. Moreover, The PNC Financial Services Group, Inc. (NYSE:PNC) shares rose 3.7%.

Over the last six months, Citigroup and BofA were the worst performers with their shares losing 18.0% and 17.3%, respectively. Moreover, Capital One Financial (NYSE:COF) shares fell 12.6%.

What's Next in the Banking Space?

Over the next five trading days, performance of banking stocks is expected to continue in a similar manner unless any unforeseen incident crops up.