Bank Stock Roundup: Brexit Concerns Persist; JPMorgan & Citigroup In Focus

Over the last four trading days, major banks showed a bearish trend. Though investors’ confidence received a boost with most banks getting the 2016 capital plan approval, concerns over Brexit continued to weigh on the stocks. Moreover, concerns related to global macro issues remained an overhang.

Further, the Brexit aftermath has rattled the stock market and led to a further decline in mortgage rates this week, hitting a new low of 3.41%. 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.

Notably, low rates are expected to spur real estate activity and lending as experienced in 2012. Therefore, for mortgage lenders including Bank of America Corp. (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC) , low rates could benefit their consumer and home loan businesses.

Headlines also consisted of banks' strategies to boost profitability through restructuring.

Against the tough industry backdrop, second-quarter earnings season is knocking at the door. Banks will start reporting next week.

BANKS-MAJOR REGIONAL Industry Price Index

BANKS-MAJOR REGIONAL Industry Price Index

(Read: Bank Stock Roundup for the week ending Jul 1, 2016)

Important Developments of the Week

1. While most foreign banks are constricting their operations in India due to regulatory concerns, JPMorgan Chase & Co. (NYSE:JPM) is all set to open three more branches in the country. It has already won the Reserve Bank of India’s approval for this expansion. The branches – one each in New Delhi, Bengaluru and Chennai – are expected to be operational in the next few months. All of JPMorgan’s existing products and services, including cash management, trade finance, foreign-currency payments and lending services, are expected to be available in the new branches (read more: JPMorgan Goes Against the Herd to Expand in India).

2. Citigroup Inc (NYSE:C). (C) continued with its strategy of divesting parts of its consumer and investment banking operations to free up capital, reduce expenses and in turn increase profits. The firm is planning to sell its fixed income analytics business named Yield Book. Though financial terms of the transaction remain undisclosed, Yield Book accounts for around $100 million in revenues annually. Yield Book relates to books about bond data which started getting publishing in the 1960s by Wall Street firm Salomon Brothers (read more: Is Citigroup Divesting Analytics Business 'Yield Book'?).

3. In line with continued efforts to streamline operations, Citigroup is reportedly merging its consumer banking unit in Europe, Middle East and Africa (EMEA) with Asia. The latest move will not impact headcounts in EMEA or Asia, and will combine consumer banking revenues in Bahrain, the UAE, Russia, Poland and the U.K. with Asia. Asia, which remains a major region for profit for the business after North America and accounted for a fifth of Citigroup’s global consumer banking (GCB) profit last year, will manage the company’s business across 17 countries.

4. The PNC Financial Services Group Inc. (NYSE:PNC) enhanced its quarterly common stock dividend by 8% to 55 cents per share. The dividend will be paid on Aug 5, 2016 to shareholders of record as of Jul 18, 2016. This reflects the company’s commitment to return value to shareholders with its strong cash generation capabilities. The dividend increase is part of PNC Financial’s 2016 Capital Plan.

5. Companies fall under the purview of increased regulatory scrutiny of the Federal Reserve if ownership stake crosses the level of 10% in a bank. The regulators’ concern arises from the fact that investors’ large stakes in a bank may result in the investor influencing or controlling the operations and management of the bank. Therefore, legendary investor Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRKa) has sought permission from the Fed to increase its stake in Wells Fargo after hitting the level of 10% in March. Notably, Berkshire’s holdings include 479.7 million shares of Wells Fargo and Warren Buffett has 2 million in his private account (read more: Buffett Seeks Fed Approval for Increased Stake in Wells Fargo).

Price Performance

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

In the last five trading sessions, Citigroup and U.S. Bancorp (NYSE:USB) were the major losers, with their shares decreasing 2.1%. Moreover, PNC Financial shares declined 1.8%.

BofA and Citigroup were the worst performers over the last six months with their shares losing 15.5% and 13.0%, respectively. Moreover, PNC Financial shares fell 9.9%.

What's Next in the Banking Space?

The focus will solely be on earnings releases next week. Bank of the Ozarks, Inc. (NASDAQ:OZRK) is scheduled to start off the season on Jul 11. Among Wall Street giants, JPMorgan will report on Jul 14 while Citigroup, PNC Financial, U.S. Bancorp and Wells Fargo will release their results on Jul 15.