Bank investors wait and watch
Interest-rate hike would help boost slumping profits
Hike would help boost slumping profits,
Two groups that will be watching the Federal Reserve with especially close attention this week are the nation’s lenders and their investors — both of whom have been waiting for higher rates to turbocharge sagging loan profits.
“This is the first time since I’ve covered banks that everyone has wanted rates to go up because it will be beneficial to the bottom line,” said hedge fund manager Fred Cummings, who has been investing in bank stocks for 26 years. “Historically, when rates go up, it’s a negative,” said Cummings, portfolio manager at Elizabeth Park Capital, a $284 mil- lion fund that focuses solely on bank stocks.
The Federal Reserve’s highly anticipated policy meeting to discuss interest rates kicks off Wednesday.
If the Fed pushes rates higher over the next few years, it could greatly benefit banks — especially lenders heavily invested in shortterm and variable-rate loans.
Large banks such as JPMorgan Chase and Bank of America will be among the biggest beneficiaries due to their large credit-card and home-equity loan portfolios, said Chris Mutascio, a banking analyst with Wall Street firm Keefe Bruyette & Woods. But regional banks could also benefit, especially those heavily invested in shorter-term commercial loans, experts said.
Commercial loans, or loans to help businesses fund their operations, tend to reflect changes in interest rates more quickly than mortgages, Cummings said. The portfolio manager said he sees most commercial loans reflecting higher interest rates within 12 months, vs. three to five years for most real-estate loans.
Regional banks Cummings sees benefiting most: Fifth Third Bank, SunTrust, Zion Bancorp, Comerica and Preferred Bank. Mutascio pointed to KeyCorp and PNC for similar reasons.