Bank Stock Roundup: Some Reasons for Optimism, Wells Fargo and KeyCorp in Focus

Over the last four trading days, performance of banking stocks has been encouraging. Easing U.S.-China trade war tension has provided some respite to investors, infusing overall positivity in the market.

Mortgage rates declined this week, hitting 4.4%, along with bond yields, on fears of a trade war. Despite this, 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.

Further, the benchmark 10-year Treasury yield shrunk during the week, as demand for safe-haven assets increased due to the political tension, only to bounce back near to 2.82% as fears of the trade war waned.

Notably, mortgage applications plunged last week, per the latest data from the Mortgage Bankers Association. In addition, the refinance share of mortgage activity came in at 38.5% of all applications.

Though economic data might be affected marginally due to slapping of trade tariffs by the United States and China, the first-quarter GDP is expected to grow moderately and consumer spending is anticipated to bear minimal brunt. Therefore, positive numbers and anticipations of an improving job market might lead to rise in housing demand.

Regarding company-specific news related to banks, streamlining operations and steady capital-deployment activities persisted over the last four trading days.

 (Read: Bank Stock Roundup for the week ending Mar 9, 2018)

Important Developments of the Week

1. Continuing with the aim of focusing on core operations, KeyCorp KEY is set to sell Key Insurance & Benefits Services, Inc. This unit was acquired as part of the First Niagara Financial Group merger in 2016. KeyBank — the banking subsidiary of KeyCorp — signed a deal to vend the unit to USI Insurance Services ("USI"), the New York insurance broker.

The deal, awaiting certain regulatory approvals, is anticipated to close in second-quarter 2018. However, financial terms of the agreement remain undisclosed. (Read more: KeyCorp Vends Key Insurance & Benefits Services to USI)

2. Moody's Investors Service — a rating arm of Moody's Corp. MCO — affirmed all the ratings of Comerica CMA and its subsidiaries. The banking giant’s long-term issuer rating and a senior unsecured rating have been affirmed at A3. The bank’s subsidiary has deposit ratings of Aa3/Prime-1 and a standalone baseline credit assessment (BCA) of a2.The bank’s counterparty risk assessments is A1(cr)/Prime-1(cr).

Further, Comerica’s shelf registration has been assigned prospective ratings. The shelf senior unsecured and subordinate is rated at (P)A3, while (P)Baa1 is assigned for cumulative preferred stock, and (P)Baa2 for non-cumulative preferred stock. The rating firm’s outlook for the bank remains “stable.” (Read more: Comerica's Ratings Affirmed by Moody's, Outlook Stable)

3. Bank of the Ozarks’ OZRK board of directors recently approved a 2.6% hike in the quarterly common stock dividend. The revised quarterly dividend now comes in at 19.5 cents per share compared with the previous figure of 19 cents. The dividend will be paid on Apr 20 to shareholders of record as of Apr 13.

This is the 31st consecutive quarterly increase in dividend by the bank, reflecting its commitment to returning value to shareholders. Prior to this hike, the company increased its dividend by 2.7% (from 18.5 cents to 19 cents per share) in January 2018. (Read more: Bank of the Ozarks Cheers Investors With 2.6% Dividend Hike)

4. With a view to trim costs and enhance the quality of customer service, Wells Fargo WFC has been making plans to merge corporate and investment banks. The bank’s restructuring move is likely to result in job cuts in industry coverage, advising, equity and debt capital, along with corporate-level relationship managerial positions.

Price Performance

Here is how the seven major stocks performed:
 

In the last four trading sessions, Citigroup C and JPMorgan JPM were the major gainers, with the banks’ shares increasing 4% and 2.2%, respectively. Furthermore, Capital One Financial COF inched up 1.8%.

Bank of America BAC and JPMorgan were the best performers over the last six months, with the stocks appreciating 17% and 16.4%, respectively. Also, shares of PNC Financial PNC climbed 13.9%. However, Citigroup slipped 6.5%.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report Q1 earnings over the next five trading days. Bank of the Ozarks will be reporting on Apr 12, while JPMorgan, Citigroup, Wells Fargo, PNC Financial, First Republic Bank FRC and First Horizon National Corp. FHN are scheduled to release quarterly figures on Apr 13.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
Comerica Incorporated (CMA) : Free Stock Analysis Report
 
KeyCorp (KEY) : 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
 
First Horizon National Corporation (FHN) : Free Stock Analysis Report
 
Bank of the Ozarks, Inc. (OZRK) : Free Stock Analysis Report
 
First Republic Bank (FRC) : Free Stock Analysis Report
 
Capital One Financial Corporation (COF) : Free Stock Analysis Report
 
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