Bank Stock Roundup: Focus Shifts From Earnings To Restructuring, JPMorgan & Wells Fargo Hit The Headlines

Over the last five trading days, major banks depicted a mixed trend. Though investors’ confidence received a boost as the overall second-quarter earnings performance of the industry has not been as bad as the market expected, concerns related to global macro issues remained an overhang.

Mortgage rates which were on an upswing mostly in July declined this week, hitting 3.43%. In spite of the plunge, investors are apprehensive about parking funds in the housing market, thanks to the volatility in the financial world. However, homeowners seeking lower rates for refinancing are definitely big-time gainers. According to the Mortgage Bankers Association, refinancing activity jumped 55% year over year.

New data reflects that the U.S. economy is growing at a much slower pace than expected. Also, consumers are availing cheap borrowing but business spending has slowed down, impacting economic growth. Further, the low interest rate environment and the troubled energy sector, though improving, remain concerns.

Overall, the focus has shifted from earnings to banks' strategies in boosting profitability through restructuring and acquisitions in the last five trading days.

(Read: Bank Stock Roundup for the week ending Jul 29, 2016)

Important Developments of the Week

1. Major Wall Street banks continued with their restructuring and streamlining operations. Recently, JPMorgan Chase & Co. (NYSE:JPM) entered into a strategic partnership with a leading electronic market maker – Virtu Financial, Inc. (VIRT), to gain access and trade in the U.S Treasuries market. According to the agreement, which will span at least for three years, JPMorgan will use Virtu’s technology to trade a small part of its fixed income business – dealer to dealer markets in U.S. Treasuries.

High-frequency trading firm, Virtu makes markets in 36 countries by offering quotations to buyers and sellers in over 12,000 financial instruments on more than 235 exchanges. Notably, Virtu is also the designated market maker for JPMorgan's stock on the floor of the New York Stock Exchange (read more: JPMorgan Partners with Virtu to Trade in U.S. Treasuries).

2. With an objective to increase market share in commercial lending markets, Wells Fargo & Company (NYSE:WFC) completed the acquisition of General Electric Company’s (NYSE:GE) Commercial Distribution Finance (CDF) business in Australia and New Zealand. Notably, Wells Fargo sealed the deal with GE Capital, an arm of the Connecticut-based company last October.

The acquisition comprised CDF assets and 123 team members at 5 sites in Australian markets, and CDF assets and 7 team members at 2 sites in New Zealand. Notably, the Europe, Middle East and Africa (EMEA) segment’s closure is expected to take place later this year (read more: Wells Fargo Acquires GE Capital's CDF business).

3. KeyCorp (NYSE:KEY) announced the closure of the deal to acquire First Niagara Financial Group, Inc. Notably, systems and client conversions are expected to be completed by the fourth quarter of 2016, subject to approval by the U.S. Comptroller of the Currency. The acquisition was announced in Oct 2015. Post merger, KeyBank will have a network of more than 1,200 branches and 1,500 ATMs, located in 15 states.

The merger will also add approximately $29 billion in deposits and total assets of $40 billion to KeyCorp, based on Jun 30, 2016 balances. At the time of announcement of the deal, KeyCorp had projected that it would dilute earnings per share by 1–2% in 2016, and thereafter be accretive to earnings in 2017, excluding merger and integration costs of approximately $550 million. Further, the company anticipated $400 million worth of savings in annual expenses.

Price Performance

Overall, the performance of banking stocks reflected mixed sentiments. Here is how the seven major stocks performed:

In the last five trading sessions, The PNC Financial Services Group, Inc. (NYSE:PNC) and JPMorgan were the major gainers, with their shares increasing 1.5% and 0.9%, respectively. However, Capital One Financial Corp (NYSE:COF).’s (NYSE:C) shares declined 1.3%.

JPMorgan and Bank of America Corp (NYSE:BAC). (NYSE:C) were the best performers over the last six months, with their shares gaining 10.5% and 9.3%, respectively. Moreover, Citigroup Inc.’s (NYSE:C) shares increased 7.5%.

What's Next in the Banking Space?

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

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