Bank Stock Roundup: Restructuring and Earnings Dominate Headlines; SunTrust, Comerica & Citi in Focus

Earnings releases dominated the headlines for banks in the last five trading days. The results reflect banks' ability to overcome the tough industry backdrop with the help of effective cost-control measures and streamlining activities. In spite of subdued revenue growth, prudent expense management and overall lower provision supported the bottom line results. These along with the banks' earnest confrontation of challenges led to positive share price movement.

Apart from this, banks continued with their restructuring activities. However, the positive mood was somewhat dampened by news of the European Commission imposing fines on banks for rigging the benchmark interest rate. Further, the Federal Reserve came up with the 2015 stress test scenarios.

(Read last to last week's developments: Bank Stock Roundup for Oct 17, 2014)

Recap of the Week's Most Important Earnings:

1. SunTrust Banks, Inc.'s STI third-quarter 2014 adjusted earnings of 81 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure compared favorably with 66 cents earned in the year-ago quarter.

Results were supported by both rise in revenues and fall in expenses. Moreover, improvement in credit quality, rise in loan and deposit balances, and improved profitability ratios acted as tailwinds, while capital ratios deteriorated. (Read More: SunTrust STI Misses on Q3 Earnings, Revenues Rise)

2. U.S. Bancorp's USB third-quarter 2014 earnings of 78 cents per share came in line with the Zacks Consensus Estimate. However, results were above the prior-year quarter earnings of 76 cents.

Higher revenues, a strong capital position, lower nonperforming assets and growth in average loans and deposits were the positives in the quarter. However, an increase in operating expenses and higher provision for credit losses acted as headwinds. (Read More: U.S. Bancorp USB Reports Q3 Earnings as Expected)

3. After delivering six consecutive quarters of earnings beat, Comerica Incorporated CMA lagged the Zacks Consensus Estimate in third-quarter 2014. Adjusted earnings of 79 cents per share fell short of the Zacks Consensus Estimate by 2 cents, although it compared favorably with the prior-year figure of 78 cents.

Decline in non-interest expenses, a slight rise in net interest income and lower provision for credit losses were more than offset by a decrease in non-interest income. Nevertheless, the company's healthy capital position, improving credit quality and strong capital deployment activities acted as tailwinds for the quarter. (Read More: Comerica CMA Lags Earnings Estimates; Revenues Drop)

4. Driving its commodities trading operations, Citigroup Inc. C purchased Deutsche Bank AG's energy and metals book. Notably, the company has also acquired the German bank's oil and power trading books in the last few months.

Citigroup's commodities trading operations focuses primarily on oil and oil products, power and natural gas, base metals and precious metals. In the wake of tighter regulations when several Wall Street biggies pulled back their interests in the commodity trading sector, the company is showing the gall to tread the opposite path. Citigroup's latest move appears to be in line with its strategy to promote its profitable ventures while divesting the non-core assets. (Read More: Citigroup Buys Deutsche Bank's Energy, Metals Trading Books)

5. The Federal Reserve announced the scenarios for the latest round of annual stress test (mandated by 2010 Dodd-Frank Act) to be held in 2015. This time the test comprises 31 bank holding companies, with Deutsche Bank Trust Corporation, the U.S. unit of Deutsche Bank, being the new entrant.

The latest scenario for the stress test includes a criterion that reflects growing concern about lending to companies with a high level of debt. Banks are required to submit their stress test documents by Jan 5, 2015, and those who fail to meet the minimum capital levels under stressed scenarios will not be able to get approvals for their 2015 capital plans.

Price Performance

Banking stocks depicted an upward trend with decent third-quarter results. Investors seemed to be impressed by the banks' efforts to remain profitable.
 

In the last 5 trading sessions, Wells Fargo& Company WFC and JPMorgan Chase & Co. JPM emerged as the major gainers, with their share prices increasing 3.9% and 3.3%, respectively.

Over the last 6 months, Citigroup and Capital One Financial Corp. COF were the top performers, with their shares advancing 6.3% and 5.4%, respectively. However, The PNC Financial Services Group, Inc. witnessed a 2.6% price decline over the same time frame.

What Next to Expect in the Banking Universe?

With almost all major earnings results out for the third quarter, we don't expect any significant changes in the sector dynamics in the next week.

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