Bank Stocks Getting Set for Upcoming Federal Reserve Rate Hike
Federal Reserve Chairperson Janet Yellen has made it clear that she expects to recommend (a minimum) of three increases in the Federal Reserve interest rate in 2017. The extent of the effects of these rate hikes will depend in part on the size of the rate increase. For investors holding bank stocks, the question looms whether the hikes will positively impact the bank’s stock price. The key piece of financial data investors should look for is net interest position with respect to yield curve movement, Net interest margin what is left over from the profits after the banks pay off their loans, however bank’s derivatives hedging positions and trading portfolio positions also plays very significant role in affecting bank’s bottom line. On March 15th, the Fed voted 9 to 1 to start raising the rates by 25 basis points to the range between 0.75 percent and 1 percent. Here are two stocks, Bank of America and Citigroup, whose value will be directly affected by the expected increases.
RDI Initiates Coverage:
Bank of America Corp. https://ub.rdinvesting.com/news/?ticker=BAC
Citigroup Inc. https://ub.rdinvesting.com/news/?ticker=C
Bank of America Corp. stock went up 4 5 cents a share to close at $25.22 per share. After hours trading has the stock up another 20 cents. There are differing opinions on the effect the interest rate hikes will have on the company. An RBC study listed 20 banks that could benefit from a rate hike, and Bank of America was among them. Using each bank’s assumption for the net interest revenue increase resulting from a 100 or 200 basis point increase in interest rates, we calculate that the top 20 banks would on average see an increase in net interest revenue equivalent to 7.1% of 2017 estimated earnings”, they said. The company has it’s consensus rating stands at “overweight”, some investment analysts however are recommending to hold on to the bank stock as long as possible until the date of the rate hike can be seen on the horizon. The company had no initial response to the decision by the Federal Reserve or on its future operating profits. Bank has witnessed improved environment for credit changes and has generated significant higher trading revenue in the last quarter. On February 15, bank has reported 1.60 percent of credit card delinquency rate for January month versus 1.56 percent for the same on December.
Access RDI’s Bank of America Research Report at: https://ub.rdinvesting.com/news/?ticker=BAC
Citigroup is another major bank whose stock is certain to be impacted by the rate hike. Its stock jumped 32 cents a share to close at $61.15. Citigroup’s Chief Financial Officer John Gerspach said that while the company’s acquisition of CostCo’s portfolio from American Express has resulted in some financial benefit, the 2nd quarter of 2017 should a marked increase in revenues however it is yet to hit the bank’s bottom line. The news also included that Citigroup was chosen as one of three banks to work with Saudi Arabia’s as it prepares to help the country for an Islamic bond sale. The Saudi sale is a step towards helping the country manage its current budget deficit. Although effect of hike in interest rate on Citi’s profitability is still not clear, the other news gets better for the Citigroup, and investors may expect a sunny and warm financial summer given its fast start to 2017.
Access RDI’s Citigroup Research Report at: https://ub.rdinvesting.com/news/?ticker=C
Our Actionable Research on Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C) can be downloaded free of charge at Research Driven Investing.
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