It appears that Russia’s leaders, President Vladimir Putin in particular, had calculated that the democratic countries would not do anything serious to stop them from trying to take Ukraine.
They were wrong.
In response to the tragic human consequences of Russia’s action, SWIFT complied with with EU and US sanctions and disconnected seven Russian banks. By disconnecting select Russian banks from its financial messaging services, it disrupted a major participant from the system. Russia also closed its stock market, fueling panic for Russian-based firms listed on the exchange. Russian bank stocks fell and lost most of their value. Investors panicked and sold off non-Russian bank stocks too. Despite assurances from American banks that they had minimal exposure to Russia, markets are anticipating unexpected losses for them.
Seven bank stocks took a beating after the SWIFT sanction against Russia. They are:
- Bank of America (NYSE:BAC)
- Citigroup (NYSE:C)
- ING Group (NYSE:ING)
- JPMorgan Chase (NYSE:JPM)
- Morgan Stanley (NYSE:MS)
- Toronto-Dominion Bank (NYSE:TD)
- Wells Fargo (NYSE:WFC)
In the chart above, the average value score is 90/100. The data, provided by Stock Rover gives investors a reasonable assurance that shares trade at a discount to the market. The disrupted global bank system with Russia may hurt results in the near term. Geopolitically, bankers must respond to Russia’s aggression to its neighboring Ukraine. Besides, interest rates will rise steadily in 2022. Banks have plenty of other income sources to fuel growth and reward shareholders.
Beaten up Bank Stocks: Bank of America (BAC)
Bank of America formed a technical peak at $50 between January and February 2022. The stock’s fall below its major moving averages for the week ended March 4, 2022, may not be entirely due to the turmoil in Russia.
Investors seeking shelter from the stock market volatility probably sold BAC stock. They parked it in the 2-year and 10-year U.S. Treasuries. The safe haven is appealing. The Federal Reserve appears highly unlikely to raise interest rates by any meaningful amount. Bonds are more attractive under those conditions.
At the end of January, Bank of America reported a credit card delinquency of 0.93%. This is slightly higher than the 0.89% reported in December 2021. It is still a sharp improvement from January 2021’s 1.55% rate. Net charge off, or the difference between gross charge-offs and any subsequent recoveries of delinquent debt, fell to 1.22%. In December, the NCO rate was 1.35%.
BAC stock is not entirely attractive. For 2021, the board approved a generous $32 million compensation for Chief Executive Officer Brian Moynihan. The bank may suffer from the negative optics of high executive payouts. Its dividend is only 84 cents a share. This company needs to raise its dividend as its profits improve this year.
Citigroup is on the top of global investment banks with heavy exposure to Russia. According to International Financing Review, it has fixed-income and currencies trading exposure to the country at $100 million. The exact value of Citi’s Fixed Income, Currencies, and Commodities (FICC) exposure will change daily. For example, the product value depends on local market interest rates, currencies, and credit.
In the months ahead, losses from Russia could grow exponentially. Citi will need to unwind its Russian exposure as sanctions intensify. The geopolitical outlook is highly uncertain. Since markets hate uncertainty, C stock could fare poorly in the near term.
According to a 10-K filing, Citi’s total exposure is $5.4 billion. This includes $2.2 billion in Institutional Client Group loans. Investment securities account for $1.5 billion. At face value, the exposure is a small percentage of Citigroup’s market capitalization. Markets likely beat up C stock in anticipation of recession risks in the months ahead. Typically, a surge in oil prices leads to a recession next.
Beaten up Bank Stocks: ING Group (ING)
On March 2, ING said it would stop doing business with Russia. In the press release, it wrote that it stands with the people of Ukraine. In response to the Russian invasion, it will not do any new business with any Russian companies. The bank will support Ukraine by waiving fees. This includes allowing people to send money to loved ones.
After ING stock fell dramatically, ING may consider buying back shares before the stock stages a V-shaped bounce.
The bank has strong fundamentals. In the fourth quarter, net income grew by 30% year-over-year (Y/Y) to EUR 945 million. Net income rose by 0.9% Y/Y to EUR 3.37 billion. Net interest income (NII) will rise further after central banks raise interest rates in 2022. In 2021, ING added 481,000 primary customers. It has 14.3 million total customers. CEO Steven van Rijswijk said, it “is well prepared to navigate the current operating environment, with solid capital buffers, a strong risk profile and a focus on execution.”
ING will also strengthen its environmental, social and governance (ESG) profile and deliver on its sustainability targets.
JPMorgan Chase (JPM)
Investors dumped shares of JPMorgan since late February. The stock faced technical resistance at between $150 – $160 as this chart shows. Business momentum will slow after the bank froze fund trading with exposure to Russian equities.
In the exchange-traded funds market, Direxion announced it would close its Russia Bull 2X Shares (NASDAQ:RUSL). The lack of liquidity for Russian equity will have a small impact on JPMorgan’s business. Still, the amount is negligible. It does not warrant JPM stock falling recently.
Due to a lack of transparency in business dealings, investors are uncertain about how much exposure most banks have in Russia. JPMorgan did not list Russia in the top 20 countries of asset exposure.
To expand its business horizon, investors should appreciate JPMorgan’s strategic investment in TRM Labs. On Feb. 28, 2022, TRM Labs said that the bank joined the roster of firms investing in its crypto compliance and risk management technology. JPM shareholders will benefit as the bank embraces cryptocurrency. The market is growing in importance. More people are completing transactions using cryptocurrency. TRM has the technology to monitor cryptocurrency transactions for suspicious activity.
Beaten up Bank Stocks: Morgan Stanley (MS)
Morgan Stanley stock peaked at $109.73 and closed at below $90 on March 4. Investors probably penalized the stock because it has offices in the country.
MS stock could face selling pressure because it has staff in the country. Not only might domestic chaos endanger them, but doing business there amid sanctions will hurt the firm’s reputation.
A Morgan Stanley investing chief said that anyone trading on the Russia-Ukraine conflict would probably struggle. This view does not show how much exposure Morgan Stanley has to the country. Still, it hints that MS stock could struggle, too, if it was overly committed to doing business there.
After Russia annexed Crimea in 2014, U.S. banks cut their exposure after sanctions were placed at the time. Yet Morgan Stanley is one of the banks that continued to underwrite and provide advisory services for Russian deals.
In the fourth quarter, the company posted non-generally accepted accounting principles (GAAP) earnings a share of $2.01. Revenue rose by 6.8% Y/Y to $14.5 billion. Core Return on Tangible Common Equity was 19.8%.
Toronto-Dominion Bank (TD)
TD Bank held up relatively well compared to its peers. TD stock is on a sustained uptrend since bottoming last September 2021.
The bank’s acquisition of First Horizon (NYSE:FHN) overshadows any concerns of exposure to Russia. TD will pay $13.4 billion in cash. TD has a long-term growth strategy that includes acquiring regional banks that have similar cultures and risk-management frameworks. After the acquisition, TD will become a top-six U.S. bank. It will have $614 billion in assets. Globally, D Bank Group will have nearly CAD 1.84 billion in assets.
In the first fiscal quarter of 2022, TD Bank posted revenue of CAD 11.28 billion, up by 4.3% Y/Y. TD owes its strong performance to developing profitable products that customers need. For example, it launched the TD Essential checking account late last year. This product has no overdraft fees. Now, 10% of all accounts are in that product.
Customers get real-time alerts when the account is overdraft. This is a great feature that improves customer satisfaction and raises loyalty.
Beaten up Bank Stocks: Wells Fargo (WFC)
In January, Wells Fargo planned a sale of its 20% stake in Hong Kong-based lender Shanghai Commercial Bank. The bank’s decreased exposure to Asia is a positive development. Hong Kong and China’s economy is showing weakness. Furthermore, the bank’s sale of non-strategic holdings will improve its balance sheet and remove a distraction.
Wells Fargo could get around $1 billion from the sale.
Domestically, Wells Fargo is improving its business efficiency. It shut down almost 4,000 branches and opened over 1,000 branches. The net closure of 2,927 branches is necessary. The industry is consolidating, so the bank needs to reduce overlap. For example, when there are two branches close by, Wells Fargo’s efficiency falls.
Wells Fargo is on a multi-year plan to strengthen its online presence. It offers up-to-date services that include a digital wallet and payment app. In the digital payments space, the bank has new security challenges. For example, criminals may pose as a Wells Fargo representative to trick unsuspecting victims.
After Wells Fargo’s stock fell in sympathy with other banks, investors should consider its upside prospects at these levels.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.