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Dave wrote earlier about how financials are getting hammered by a slew of worries, economic and regulatory.
Deutsche Bank analysts gave investors in banks something else to worry about this morning: Interest rates.
Banks badly need rates to rise, Deutsche Bank analyst Matt O’Connor wrote, in order to bolster their net interest margin, or NIM, the cash they skim from borrowing cheaply and lending money a little more dearly:
On average, we estimate bank NIMs to rise 15-20bps over the next two years. This reflects potentially higher interest rates, a pickup in loans (and decline in securities/other liquid assets) and less drag from credit. But if rates don’t rise, NIMs will likely disappoint.
Our 2013 base case NIM scenario assumes … 1.5-2% short rates and 4.5% long rates. But if rates stay at current levels, we estimate NIMs may be 10bps lower on average than our estimates. This would suggest 5% EPS risk vs. our estimates.
Of the 16 banks we track that provide interest rate sensitivities, 14 were positioned for rising rates at 3/31 … according to disclosures in 10Q filings. Of the 14 … the best-positioned for rising rates were Comerica, J.P. Morgan, Regions Financial and Zions. The worst positioned banks were Citigroup, Capital One and SunTrust. (Meaning, apparently, that Citi, Capital One and SunTrust would be hurt least if rates don’t go up.)
Long-term rates have done little but move lower over the past three months, which might help explain the performance of bank stocks during the same stretch — another way the flatter yield curve is biting.
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I have thinking the as long the interest rate is low the beneficiary will be USA, they do not have to borrow at high interest rest,at the same time the rest of the nation will safer specially the elderly that depends on erning from the capital that they have accumulated in the bank for their living expenses, so Federal reserve keep it going and keep screwing us
Tim, that’s how I read the report. I’ll add a note to help clarify.
So if Citi is the worst positioned… Does this mean they are the best positioned if rates don’t rise???
MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. The Wall Street Journal's Chief Markets Commentator Dave Kansas and MarketBeat lead writer Matt Phillips spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com or write Dave at dave.kansas@wsj.com or Matt at matt.phillips@wsj.com.
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