Bank Stock Roundup: STI, RF, FITB & COF Beat Q1 Estimates, WFC To Pay $1B Fine

Major banks that reported first-quarter 2018 results over the last five trading days managed to record bottom-line improvement, driven by rising rates, stable asset quality and lower taxes. Apart from the benefits from higher interest rates, banks’ results reflected a slight improvement in lending activities.

However, higher expenses and slowdown in mortgage banking business continued to be major headwinds. Also, it seems that the guidance provided by management didn’t meet investors expectations. Thus, the performance of banks over the last five trading sessions was bearish.

Apart from first-quarter earnings releases, a huge penalty for Wells Fargo (NYSE:WFC) dominated the headlines. The bank’s business misconducts have even led to several probes into its business activities.

(Read: Bank Stock Roundup for the week ending Apr 20, 2018)

Important Developments of the Week

1. SunTrust’s (NYSE:STI) first-quarter 2018 earnings of $1.29 per share outpaced the Zacks Consensus Estimate of $1.11. Results were primarily driven by rise in net interest income, lower expenses as well as lower provisions. However, decline in non-interest income hurt results to some extent. (Read more: SunTrust Beats on Q1 Earnings as Expenses Decline)

2. Riding on high revenues, Regions Financial (NYSE:RF) recorded an impressive earnings surprise of 12.9% in first-quarter 2018. Reported earnings of 35 cents per share outpaced the Zacks Consensus Estimate of 31 cents. Easing margin pressure and higher revenues benefited the results. However, lower loans and deposits balance as well as higher expenses were the undermining factors. (Read more: Regions Financial's Q1 Earnings Beat, Costs Escalate)

3. Fifth Third Bancorp’s (NASDAQ:FITB) first-quarter 2018 adjusted earnings per share of 57 cents outpaced the Zacks Consensus Estimate of 48 cents. Results reflect an increase in revenues along with significant decline in provisions. However, increase in expenses was an undermining factor. (Read more: Fifth Third Beats on Q1 Earnings, Provisions Decline)

4. Capital One’s (NYSE:COF) first-quarter 2018 adjusted earnings of $2.65 per share surpassed the Zacks Consensus Estimate of $2.34. Results benefited from rise in revenues, a decline in provision for credit losses and easing margin pressure. Yet, an increase in expenses was the undermining factor. (Read More: Capital One Beats on Q1 Earnings as Revenues Improve)

5. Business misconducts continue to haunt Wells Fargo. The bank has been penalized for alleged customer abuses at its mortgage and auto lending businesses. The company agreed to pay $1 billion (in total) to the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.

Both the regulators fined Wells Fargo for wrongly charging fees to borrowers who wanted to lock in an interest rate on a pending mortgage loan and for sticking auto loan clients with insurance policies they didn't want or require. Notably, the company admitted that tens of thousands of its customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.

Nevertheless, these allegations are separate from the bank’s sales practice scandal that erupted in September 2016.

As a result of this huge fine, Wells Fargo adjusted its first-quarter 2018 earnings by an additional $800 million accrual. This lowered the company’s first-quarter net income by $800 million or 16 cents per to $4.7 billion or 96 cents per share.

Nevertheless, this isn’t the end of litigations/probes for Wells Fargo. The company’s wealth management business, currency trading operation and retirement-plan services unit are reportedly under investigation by several regulators.

Price Performance

Here is how the seven major stocks performed:

In the last five trading sessions, PNC Financial (NYSE:PNC) was the major gainer, with its shares gaining 1.1%. However, shares of Capital One, JPMorgan (NYSE:JPM) and Wells Fargo declined. While Capital One tanked 6.5%, the other two lost 1.2% each.

JPMorgan and Bank of America (NYSE:BAC) have been the best performers over the last six months, with their stocks appreciating 9.3% each. Also, shares of PNC Financial increased 6.8%. On the other hand, Citigroup (NYSE:C) and Wells Fargo declined 5.5% and 4.5%, respectively.

What’s Next?

Over the next five trading days, performance of bank stocks will likely depend on overall market performance and investors perception of guidance provided by the banks. Further, any unprecedent event might impact banks’ shares.

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