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Bank Stock Roundup: Steepening of Yield Curve and WFC, JPM, C & BAC in Focus

Over the past five trading sessions, the performance of major bank stocks has depicted an optimistic stance on expectation of U.S. economic recovery at a faster-than-expected pace.

Also, gradually declining COVID-19 cases across the country and better-than-expected economic data including new unemployment filings, which declined to the lowest level in the past three months, improving housing sector and rising consumer confidence were the other key reasons that supported the bullish sentiments.

With banks’ financials directly tied to the health of the economy, investors are now expecting improved profitability for major banks in the quarters ahead.

Further, owing to these encouraging developments, the rate on the 10-year Treasury bond rose 18.5 basis points (bps) to 1.53% over the past five trading days. Also, the yield on the 30-year Treasury bond climbed 16.6 bps over the same time frame to 2.30%. Thus, the steepening yield curve is expected to benefit major banks’ net interest margins amid a low interest rate environment.

Additionally, earlier this week, the Federal Deposit Insurance Corporation (“FDIC”) came out with fourth-quarter 2020 earnings report for banks insured by it. Net income increased 9.2% year over year to $59.9 billion, collectively for commercial banks and savings institutions. This was mainly driven by fall in provisions.

Now talking about bank-specific developments, a few major banks — at some investors’ conference — disclosed additional details related to their performance in the first quarter of 2021. Business streamlining initiatives were a major theme in the past five trading sessions.



(Read: Bank Stock Roundup for the Week Ending Jan 22, 2021)

Important Developments of the Week

1. Wells Fargo WFC has inked a deal to divest the asset management business to private equity firms, GTCR LLC and Reverence Capital Partners, L.P. The transaction, which has been valued at $2.1 billion, is expected to close in second-half 2021.

2. JPMorgan JPM has signed an agreement with Banco Bilbao Vizcaya Argentaria, S.A., wherein it will refer Mexico private banking business clients to the latter’s local unit in Mexico. This move comes as the U.S. bank plans on shutting its private banking division in Mexico and discontinuing wealth-management services that it provides in the region.

3. At an investors’ conference held earlier this week, several major banks including Wells Fargo, JPMorgan and Citigroup C came up with updated guidance for the first quarter 2021.

Coming to Wells Fargo, chief financial officer (CFO) Mike Santomassimo provided a somewhat mixed insight on the bank’s performance for the ongoing quarter. He noted that mortgage origination has been growing year over year, despite expectations of a slowdown. Further, interest revenues are expected to remain flat or decline 4% sequentially.

Besides, top executives from Citigroup and JPMorgan warned investors that trading revenues might disappoint in the first quarter of 2021. Additionally, Citigroup’s CFO, Mark Mason projected investment banking revenues to grow in high-teens or low-20s on account of a rise in initial public offerings during the quarter.

Citigroup also informed investors regarding its expectations of mid-single-digit rise in expenses in the first quarter. The upside will likely be driven by its efforts to improve the risk-management technology.

4. Bank of America BAC has cut its staff in Global Banking and Global Markets segments this week. This was reported by Bloomberg News, citing persons familiar with the matter. Employees in sales and trading, research, investment banking and capital markets were affected by the move. The reductions are part of BofA’s typical round of staffing changes this time of year, after bonuses are distributed.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

2.1%

52.9%

BAC

4.0%

40.0%

WFC

-0.7%

53.8%

C

2.5%

33.2%

COF

-0.3%

79.0%

USB

3.2%

44.0%

PNC

1.7%

59.2%



Over the past five trading days, Bank of America and U.S. Bancorp USB have recorded the maximum gains, with their shares appreciating 4% and 3.2%, respectively. However, shares of Wells Fargo have declined 0.7% during the same period.

Over the past six months, shares of Capital One COF have jumped 79%, while Wells Fargo and JPMorgan have surged 53.8% and 52.9%, respectively.

What’s Next?

Over the next five trading days, unless there is any major change in the economic situation, the major bank stocks are likely to perform in a similar fashion.

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