Magazine article American Banker

Who'll Win, Who'll Lose When Rates Start Rising

Magazine article American Banker

Who'll Win, Who'll Lose When Rates Start Rising

Article excerpt

Profit margin pressures from an extended period of low interest rates have had many bankers counting the days until rates begin to rise again.

But though rising rates may be healthy for many banks' earnings, even a moderate uptick this year would almost certainly hurt some.

In a report issued Monday, three analysts with Citigroup Inc.'s Smith Barney said the victims would include Charter One Financial Inc. of Cleveland; North Fork Bancorp. Inc. of Melville, N.Y.; National Commerce Financial Corp. of Memphis; and Huntington Bancshares Inc. of Columbus, Ohio.

On the other hand, M&T Bank Corp. of Buffalo, TCF Financial Corp. of Wayzata, Minn., and Comerica Inc. of Detroit should benefit the most among the companies these analysts cover.

Were the federal funds rate to increase by 100 basis points from current levels, annual per-share earnings would rise 0.5% on average, assuming that the yield of the 10-year Treasury note went up by half the increase in the federal funds, the report said.

The analysts -- Ruchi Madan, Keith Horowitz, and Matthew O'Connor -- said about half of the 25 companies they cover would benefit, while nine would suffer.

M&T's full-year earnings, for example, would rise 4.7%, and Comerica's by 12%. But for Bank of America Corp., rising rates would be a cross-current; the earnings of the old FleetBoston Financial Corp., which it bought last month, would improve 4.8%, but B of A's own earnings would fall 1.3%, neutralizing the gain.

The Smith Barney analysts did note that bankers are quick to adjust their asset-liability management positions to accommodate changing interest rates. And piecing together a bank's rate sensitivity from the outside is not easy, they said.

Mark Fitzgibbon, a co-director of research at Sandler O'Neill & Partners LP, agreed. …

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