Magazine article American Banker

Rate Turnaround Expected to Help Regional Banks

Magazine article American Banker

Rate Turnaround Expected to Help Regional Banks

Article excerpt

With a recession now formally under way, Wall Street's analysts are already thinking about an eventual economic recovery and the inevitable Federal Reserve monetary tightening that would accompany it.

Banking companies with a large percentage of their assets in commercial lending, as well as those with a lot of core deposits, would stand to benefit from rising rates, analysts say. In other words, the regional banks that have watched their margins shrink as the Federal Reserve cut its rates may expect some relief when that happens, they say.

Christopher Marinac, an analyst at SunTrust Robinson Humphrey, said in an interview that if the U.S. economy recovers by mid-2002, investors should expect both higher short-term and long-term interest rates, as well as a flatter yield curve, and that could be good news for certain banking companies' stocks.

"Regional banks with a high proportion of core deposit funding should be well positioned to fund loan growth and experience fatter net interest margins when rates rise," he wrote in a report Monday.

Asset-sensitive banks in particular stand to benefit from rising rates, and they should receive the immediate benefit of asset yields rising faster than deposit costs, Mr. Marinac said. Companies such as Mercantile Bankshares Corp. of Baltimore, Cullen/Frost Bankers Inc. of San Antonio, and Houston's Sterling Bancshares and Southwest Bancorp. of Texas Inc., should gain the most, he said. …

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