Bank Stock Roundup: Investor Confidence Shaken, COF & WFC in Focus

Over the last five trading days, the performance of banking stocks has been bearish. Expected delays in corporate tax reform and a flattening of the yield curve drove investor pessimism over bank stocks.

Earlier this week, Democrats won elections in Virginia and New Jersey, which indicates increased prospects for their representatives in next year's midterm elections. This development increases investor apprehension, as this might challenge Republicans' plans of lessening regulations for banks. Expected weakness in economic numbers also added to the woes.

Mortgage rates declined this week, hitting 3.9%, awaiting tax-reform results. Notably, concerns rose after the message sent by Republicans last week, “We think homeowners and home buyers have gotten much too sweet a deal from the federal tax code for far too long — and now we’re going to whack them down.”

Nevertheless, strategies to enhance profitability through streamlining operations and increased digital offerings persisted over the last five trading days.

 

 (Read: Bank Stock Roundup for the week ending Oct 27, 2017)

Important Developments of the Week

1. Amid ongoing restructuring in the banking sector to propel revenues and reduce costs, recently Capital One Financial Corp. COF announced it will stop originating mortgage and home equity loans, as heightened competition has made it difficult to remain profitable. The bank will lay off 950 employees as a result of its exit from this business.

However, the company will continue to service its existing home loans. Capital One is also closing a call center that employs about 200 workers, as they have experienced a decline in call volume with customers being more comfortable with its mobile app and other modes of communication with the bank. The call center will be functional till summer 2018. (Read more: Capital One Cuts 1100 Jobs as it Exits Mortgage Business)

2. Moody's Investors Service — the rating services arm of Moody's Corporation — downgraded Capital One’s outlook from stable to negative. The company’s senior unsecured debt ratings were affirmed at Baa1. Additionally, the deposit ratings for its subsidiaries were confirmed at A1/negative/Prime-1. Moody’s believes exceptional loan growth over the years has led to increased charge-offs particularly in credit card and C&I portfolios, which resulted in a decline in the profitability of the company and increased risk levels. (Read more: Capital One's Ratings Affirmed by Moody's, Outlook Negative)

3. In order to attract young investors, Wells Fargo & Company WFC has launched Intuitive Investor — a new digital and low-cost option — aimed to help customers who prefer managing their investments themselves. This investment program is a blend of technology and provides access to professional advice from the company’s advisory department. It also seeks to target existing customers of Wells Fargo who are yet to open an investment account.

People can start investments under Intuitive Investor with a minimum of $10,000, which will be managed at a minimal annual advisory fee of 50 basis points (bps). The existing customers will be eligible for a discounted advisory fee of 40 bps upon linking their brokerage accounts with Wells Fargo’s relationship checking program — Portfolio by Wells Fargo. (Read more: Wells Fargo Launches Robo-Advisor to Attract Young Investors)

Price Performance

Here is how the seven major stocks performed:
 

Company	Last Week	6 months
JPM	-3.7%	13.8%
BAC	-4.8%	11.4%
WFC	-4.2%	0.2%
C	-2.2%	21.3%
COF	-3.8%	8.1%
USB	-4.6%	2.2%
PNC	-4.4%	9.9%

In the last five trading sessions, Bank of America Corp. BAC and U.S. Bancorp USB were the major losers, with the shares decreasing 4.8% and 4.6%, respectively. Furthermore, The PNC Financial Services Group, Inc. PNC moved down 4.4%.

Citigroup Inc. C and JPMorgan Chase & Co. JPM were the best performers over the last six months, with the banks’ shares jumping 21.3% and 13.8%, respectively. Also, shares of BofA increased 11.4%.

What’s Next?

In the coming five days, performance of bank stocks is likely to follow a similar trend, unless there is any unprecedented event.

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J P Morgan Chase & Co (JPM) : Free Stock Analysis Report
 
PNC Financial Services Group, Inc. (The) (PNC) : Free Stock Analysis Report
 
U.S. Bancorp (USB) : Free Stock Analysis Report
 
Wells Fargo & Company (WFC) : Free Stock Analysis Report
 
Citigroup Inc. (C) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
Capital One Financial Corporation (COF) : Free Stock Analysis Report
 
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