In addition, tangible book value increased 4% over the linked quarter. Bank of America Corp (NYSE:BAC) was the only bank that reported a modest decline of 1% in its tangible book value.
The future of these banks
The future for the three banks considered in this article is rough. Higher interest rates are one of the main reasons why JPMorgan Chase is concerned. Rising mortgage rates can cause the bank to report a 30% – 40% decline in its mortgage lending volumes, while the continued pressure on the bonds market is creating further headwinds for the bank. In such a scenario, cost-cutting is one of the main factors that could help JPMorgan Chase to outmaneuver upcoming challenges. So, the current challenges make me bearish on JPMorgan unless a definite cost-cutting program is announced.
The story is not very different for Bank of America Corp (NYSE:BAC). Bank of America is also facing the risk of a significant decline in its mortgage business due to rising mortgage rates. Rising mortgage rates threaten the bank’s elevated refinancing volumes. However, on the positive side, the bank’s management expects to further decline its operating expense to $2 billion each quarter. I believe if the bank reaches its target, it could offset the 5% decline in mortgage application pipeline. The bank’s capital position is not in any immediate trouble as well. So, I am bullish on the stock.
Citigroup Inc (NYSE:C)’s investors should also be prepared for the headwinds coming ahead. According to an article on Reuters, a decline in the debt underwriting volumes is expected driven by rising bond yields. Also, profits from emerging markets could be expected to come down as growth in these economies slows down. Since Citigroup Inc (NYSE:C) has a large presence outside the US, it would be affected the most due to the slowdown in emerging markets. Also, a significant currency translations risk persists for Citigroup due to its large presence outside the US. So, I am bearish on the stock.
Conclusion
While JPMorgan Chase & Co. (NYSE:JPM), Bank of America and Citigroup all reported better-than-expected headlines for the second quarter, only one has a bright future ahead. While JPMorgan Chase & Co. (NYSE:JPM) is faced with headwinds from rising bond yields and rising mortgage rates, Citigroup is faced with increased risk from its international presence. In contrast, Bank of America has a solid cost-cutting plan and its management is doing everything to achieve its targets, in order to offset the expected declines in its mortgage banking. So, I am bullish on Bank of America.
Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc (NYSE:C) , and JPMorgan Chase & Co (NYSE:JPM). Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Banking Trends to Keep an Eye On originally appeared on Fool.com is written by Adnan Khan.
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