Bank Stock Roundup: Fed Interest Hike Expectation Raise Optimism; JPMorgan, Citi In Focus

Over the last five trading days, major banks’ rally continued with expectation of another interest rate hike this month. The rate hike will aid top-line expansion for banks, making way for improved results in the quarters ahead. An upsurge in interest income is anticipated for banks and margin pressure is likely to ease further. Further, domestic economic growth will support their financials.

Mortgage rates, which were on an upswing, declined this week, hitting 4.10%. 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.

Meanwhile, banks remained focused on strategies to enhance profitability through restructuring and acquisitions, in the last five trading days.

(Read: Bank Stock Roundup for the week ending Feb 24, 2017)

Important Developments of the Week

1. At the annual Investors Day conference, JP Morgan Chase & Co.’s management discussed the current macroeconomic backdrop and the path the company is taking to enhance profitability over the medium term. In addition, the company provided first-quarter and full-year 2017 guidance. The first and foremost thing that comes to every investor’s mind is the improving rate scenario and how banks will capitalize on the same. JP Morgan is well positioned for raising rates, which will drive its net interest income.

Further, JP Morgan (JPM) intends to invest significantly in its credit card business and become more technologically focused to remain competitive amid growing customer needs. Notably, JP Morgan affirmed its long term-targets of cost-to-revenue ratio of 55% (despite continued investments in franchise), return on tangible common equity (ROTCE) of nearly 15% and net payout ratio of 55–75% (read more: What Lies Ahead for JP Morgan Amid Improving Economy?).

2. Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported fourth-quarter 2016 earnings of $43.7 billion, up 7.7% year over year. Notably, community banks, constituting 93% of all FDIC-insured institutions, reported net income of $5.3 billion, up 10.5% year over year.