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In a note out on Tuesday, Deutsche Bank Markets Research analyst Matt O'Connor commented on which banks will likely benefit most from a higher interest rate environment.

O'Connor feels that JPMorgan Chase & Co. (NYSE: JPM) and M&T Bank Corporation (NYSE: MTB) should be the two biggest beneficiaries.

In the note, 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 JP Morgan and M&T Bank, 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 JP Morgan and M&T Bank are able to close the gap to peer banks, he believes this would boost its EPS by 4-5 percent.

Latest Ratings for JPM

Oct 2017BarclaysMaintainsOverweight
Oct 2017NomuraMaintainsNeutral
Oct 2017Bank of AmericaMaintainsBuy

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Posted-In: Deutsche Bank Matt O'ConnorAnalyst Color Analyst Ratings


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