In the ongoing media market-watching cycle of doom and boom, many analysts predict that banks will be battered by higher interest rates. This is silly for a number of reasons.
Just look at financial sector stocks as a leading indicator of banks' future profits. Higher rates incentivize banks to loan more money, and insurers generate more returns on their investment portfolios without relying on premiums or riskier asset classes.
"Rates are rising because uncertainty is lifting and the economy is getting better. It's a good environment to own any stocks, but you want to own the cyclical stocks in particular," said John Canally, investment strategist and economist at LPL Financial. "If yields are rising, it means growth is improving and companies have pricing power. … It's not the end of the world when rates go up, as long as it's going up for the right reason, and stocks generally do OK."
Low rates depress the net interest margin, which is the spread between what banks can get for lending plus what they are paid by their interest paying securities like Treasury bonds, and what they pay for short-term borrowing. If the 10-year rate goes up and the Fed rate stays low, that creates a better margin for the banks, thus more profitability, which leads to freedom to hire and expand.
Even J.P. Morgan Chief Jamie Dimon acknowledged during a financial industry conference last month that if the economy is improving, more jobs are created and profitability is high, "no one is going to care" about higher rates. He said he’d prefer "normalization in good circumstances sooner than later."
Let’s not forget that a lot of banks offer money market funds. In a low rate environment, these funds pay nothing to their investors and they end up rebating their management fees to prevent money market investors from losing money on fees every day. As rates rise, banks will be able to start charging fees again.
A firm like BNY Mellon, which already is on a nationwide wealth management hiring spree, could benefit greatly in the money market arena and create another push for building its ranks.
Company officials declined to comment on whether there would be potential hires in the near future, but pointed to a recent in-house report that in says the BNY Mellon Cash Investment Strategies unit manages more than $350 billion in domestic money market funds, offshore money market funds, sub-advised money market portfolios, bank commingled collective funds and cash collateral reinvestment products.
There is some $2.5 trillion to 2.6 trillion invested in money market funds, the company says.
When the Pay Package Isn’t Worth the Pain (eFinancialCareers)
Investment banks are under pressure to bolster internal compensation teams amid regulatory changes, and are offering hefty paychecks. But Citigroup, Credit Suisse, Goldman Sachs and Morgan Stanley can’t find candidates willing to whittle down their role.
Highbridge Capital CEO Steps Down (Wall Street Journal)
Glenn Dubin is exiting the role of CEO but will remain as chairman of the $31 billion hedge fund firm he co-founded more than 20 years ago. Dubin sold a stake in Highbridge to J.P. Morgan in 2004, and the bank bought the rest in 2009.
BofA Blasts Former Employees (Bloomberg)
Bank of America says former workers made “impossible” claims about the lender’s assistance program by alleging the bank awarded bonuses for sending homeowners into foreclosure. The second-biggest U.S. lender by assets is being sued by homeowners who claim it didn’t comply with the government’s Home Affordable Modification Program.
Moves at J.P. Morgan Asset Management (Pensions & Investments)
Roger Hallam has been promoted to chief investment officer for currency management at J.P. Morgan Asset Management’s global fixed-income group, where he’s served as deputy head of the global macro rates strategy team. The unit also appointed former portfolio managers at Schroder Investment Management, Frederick Bourgoin and Bhupinder Bahra, as co-heads of the global quantitative group.
Wall Street Top Cop Aims Again (Reuters)
Eliot Spitzer, who as New York Attorney General sued and shamed Wall Street titans, has collected enough signatures to get on the Democratic primary ballot in his bid for New York City comptroller. The new role would put him in charge city’s $140 billion in pension assets.
Icahn Battles On Over Dell Buyout (Bloomberg)
Billionaire investor Carl Icahn, who owns an 8.7% stake in floundering PC icon Dell, has offered shareholders a bigger stake in his campaign to oust Michael Dell. It’s Icahn’s fourth attempt to bungle the buyout offer of $13.65 a share from the company’s founder and Silver Lake Management LLC.
Buzz Around the Office
Get Your Red-Hot Madoff Tsotchke!
A plaque from the Toys for Tots charity lauding the convicted Ponzi schemer’s giver side is one of many odd items from his former offices up for sale.
List of the Day: How to Succeed as Your Own Boss
Being self-employed may sound liberating, but it can be more difficult than many people imagine. Here are some tips to making profit on your own.
1. Consider providing a service that requires little money to start and run.
2. Be willing and able to market and sell the service you’re providing.
3. Weigh your needs for IT, accounting and other skills you may have to outsource.
(Source AOL Jobs)
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