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Bank Stock Roundup: Q1 Earnings at the Tail End, Restructuring Dominates; Citi & SunTrust in Focus

In the last five trading sessions, the euphoria of Q1 earnings beat was replaced by the continued fundamental weaknesses in banks and a challenging operating scenario. Though majority of the banks were able to beat estimates this earnings season, overall results were not so good.

As a challenging backdrop is expected to continue in the next few months, investor sentiments for banking stocks have turned negative again. Further, the Federal Reserve’s decision to keep the interest rates unchanged during the Federal Open Market Committee (FOMC) meeting on Apr 26-27 weighed on the banking stocks to some extent.

Of the important headlines this week, streamlining and restructuring activities dominated. Also, a few banks raised their dividends depicting strength in their balance sheets.

(Read: Bank Stock Roundup for the week ending Apr 22, 2016)

Important Developments of the Week:

1. A rise in revenues drove SunTrust Banks, Inc.'s STI first-quarter 2016 earnings of 84 cents per share, which outpaced the Zacks Consensus Estimate of 76 cents. Results reflected an improvement in net interest income benefiting from the Dec 2015 rate hike. However, lower non-interest income, a jump in provision for credit losses and higher operating expenses were the downsides (read more: SunTrust Tops Earnings as Revenues Rise; Provision Up).

2. Capital One Financial Corp.’s COF earnings from continuing operations of $1.85 per share lagged the Zacks Consensus Estimate of $1.90. Lower-than-expected quarterly results were due to higher expenses and provisions, partly offset by a rise in revenues. The quarter witnessed strong growth in the company’s Domestic Card business, both in loan balances and purchase volumes, which drove top-line growth. (read more: Capital One Falls on Q1 Earnings Miss, Provisions Up).

3. Deals to offload branches remained in focus. Fifth Third Bancorp FITB completed its divestiture of 17 branches, retail and private banking deposits worth $383 million and consumer loans in Pittsburgh to Pennsylvania-based to F.N.B. Corp. FNB. The transaction was part of Fifth Third’s strategy to restructure and consolidate its branch network.

On the other hand, KeyCorp. KEY has announced sale of 18 First Niagara Financial Group, Inc. FNFG branches to Northwest Bancshares, Inc. NWBI. These branches, with $1.7 billion in deposits and $0.5 billion in loans, are located in the Buffalo Federal Reserve banking market. This is part of the KeyCorp's agreements with the Department of Justice (DOJ) and the Fed, which was entered in relation to their review of KeyCorp's pending merger with First Niagara (announced in Oct 2015). The sale will be completed following the closure of KeyCorp-First Niagara merger deal.

4. U.S. Bancorp USB, the parent company of Elavon, Inc., has sold its 50.1% stake in Sao Paulo-based Elavon do Brasil (EdB) to a privately-held merchant acquirer Stone Pagamentos, S.A. Citigroup, which owned the remaining stake in Elavon do Brasil also divested it. Notably, the financial terms were not disclosed and the transaction will have no material impact on both the companies’ results.

5. In yet other news related to streamlining operations, Citigroup (as a part of its strategy to exit global non-core businesses) has put its Asia credit card payment processing operation for sale. The news was reported by Reuters.

The unit offers credit and debit card payment processing services and generates around $400 million in gross revenue. Notably, approximately 70% of the business comes from Hong Kong, Singapore and India. Since 2005, Citigroup had begun exiting its merchants acquiring operations in other regions, with Asia remaining the last market where it still provides this service.

6. Rewarding shareholders through dividend hikes was the other important news of the week. Three major banks – Comerica Inc. CMA, BB&T Corp. BBT and Wells Fargo & Co. WFC – raised their quarterly dividends, which was part of their 2015 capital plan approved by the Fed. These companies increased their dividends in the range of 1–5%.

Comerica increased its quarterly dividend to 22 cents per share, BB&T raised it to 28 cents and Wells Fargo’s new dividend amount is 38 cents. Given their strong balance sheet position, this news definitely boosted investors’ confidence.

Price Performance

The performance of banking stocks was bearish over the last five trading days as global concerns and fundamental weaknesses took precedence. Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-0.6%

-1.5%

BAC

-2.1%

-13.9%

WFC

-0.4%

-7.8%

C

-0.4%

-14.3%

COF

-2.9%

-8.5%

USB

-0.4%

1.4%

PNC

0.1%

-3.9%


In the last five trading sessions, Capital One and Bank of America Corp. BAC were the major losers, with their shares falling 2.9% and 2.1%, respectively.

Over the last six months, Citigroup and BofA were the worst performers among these seven banks, with their shares plunging 14.3% and 13.9%, respectively. On the other hand, shares of U.S. Bancorp rose 1.4%.

What's Next in the Banking Space?

Over the next five trading days, banking stocks are likely to perform in similar manner, unless any unprecedented event occurs.

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BB&T CORP (BBT): Free Stock Analysis Report
 
COMERICA INC (CMA): Free Stock Analysis Report
 
US BANCORP (USB): Free Stock Analysis Report
 
SUNTRUST BKS (STI): Free Stock Analysis Report
 
KEYCORP NEW (KEY): Free Stock Analysis Report
 
FIFTH THIRD BK (FITB): Free Stock Analysis Report
 
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
 
BANK OF AMER CP (BAC): Free Stock Analysis Report
 
FNB CORP (FNB): Free Stock Analysis Report
 
CAPITAL ONE FIN (COF): Free Stock Analysis Report
 
FIRST NIAGARA (FNFG): Free Stock Analysis Report
 
NORTHWEST BNCSH (NWBI): Free Stock Analysis Report
 
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