Deutsche Bank Picks the Winners in Bank Stocks As Rates Head Higher

In a note out yesterday morning, Deutsche Bank Markets Research analyst Matt O'Connor commented on which banks will likely benefit most from a higher interest rate environment. Mr. O'Connor feels that JP Morgan Chase

and M&T Bank Corporation

should be the two biggest beneficiaries. In the note, Mr O'Connor states; "Interest rates continue to march higher since 3/31, with 10-year rates up 50bps, 5-year up 37bps, and 2-year up 15bps. Higher rates should be good for most bank net interest margins/NIMs over time, with some banks benefiting more than others (and some sooner than others). The biggest positive of higher long-term rates is higher reinvestment rates on securities (and mortgage loans). For those banks with capacity to add securities, the benefit can be more meaningful and occur faster—boosting both net interest income and NIM almost immediately. Of the banks we cover, we believe JPM and MTB are the most likely to benefit in the near term from adding securities. " For both JPM and MTB, he estimates that each 1 percent rise in securities/earning assets will boost Net Interest Margin (NIM) by 2bps and EPS by 1 percent. If both JPM and MTB are able to close the gap to peer banks, he believes this would boost their EPS by 4-5%. Both JPM and MTB are trading slightly higher in pre-market trade.