Deutsche Bank Says CMA, HBAN, KEY, RF and ZION Best Positioned For Increase In Interest Rates

June 23, 2009 10:40 AM EDT

As the Federal Reserve starts a two-day meeting on interest rates, analysts at Deutsche Bank issued an interesting note discussing which banks will benefit the most when the Fed raises short-term interest rates, which they expect at some point. Of the 17 banks the firm covers that disclose interest rate sensitivity, 12 are asset sensitive --- a positive in a rising interest rate environment.

The firm's findings shows that Comerica Incorporated (NYSE: CMA), Huntington Bancshares (Nasdaq: HBAN), KeyCorp (NYSE: KEY), Regions Financial Corp. (NYSE: RF), and Zions Bancorp. (Nasdaq: ZION) are the best positioned for an increase in interest rates. BB&T Corp. (NYSE: BBT), Citigroup (NYSE: C), Fifth Third Bancorp (Nasdaq: FITB), JP Morgan (NYSE: JPM), and TCF Financial (NYSE: TCB) look the worst positioned.

Deutsche Bank sees a 25-30bp increase in bank net interest margins over the next few years due to wider asset spreads, more capital, wider deposit spreads and less drag from nonperforming assets.

Deutsche Bank does caution however, that while banks may be well positioned for a modest increase in interest rates, a more meaningful rise in rates will likely result in net interest margin pressure. The firm notes that as interest rates move higher, asset prepayments will slow—causing the duration of banks' assets to extend (especially mortgage related assets). They also said consumers may move low-cost deposits to higher-yielding products-which initially reduces the duration of banks' lower cost liabilities. Also, meaningful increases in interest rates would result in banks having large unrealized losses on mortgage-related assets-some of which would negatively impact GAAP capital ratios.

Deutsche Bank said based on their 2011 EPS estimates bank stocks on average trade at an expensive 12-13x.

Stocks Mentioned:

• Bank of America (NYSE: BAC)
  
• BB&T Capital (NYSE: BBT)
  
• Citigroup (NYSE: C)
  
• Comerica (NYSE: CMA)
  
• Capital One (NYSE: COF)
  
• Fifth Third (Nasdaq: FITB)
  
• Huntington Bancshares Inc. (Nasdaq: HBAN)
  
• JP Morgan (NYSE: JPM)
  
• KeyCorp (NYSE: KEY)
  
• Marshall & Ilsley Corporation (NYSE: MI)
  
• M&T Bank Corp. (NYSE: MTB)
  
• PNC Financial Services Group Inc. (NYSE: PNC)
  
• Regions Financial Corp. (NYSE: RF)
  
• SunTrust Banks, Inc. (NYSE: STI)
  
• TCF Financial Corporation (NYSE: TCB)
  
• US Bancorp (NYSE: USB)
  
• Zions Bancorp. (Nasdaq: ZION)

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Stocks Mentioned

Related Entities

• Deutsche Bank
• JPMorgan
• Citi
• Banc of America
• BB&T Capital Markets

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