By: Matt Peron and John Jordan
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Portfolio Manager and Research Analyst John Jordan says rising interest rates, large capital reserves, and secular tailwinds are helping to bolster the financials sector despite an uncertain economic outlook.
Key takeaways:
- Higher interest rates have lifted bank profits. Along with healthy capital reserves built up over the past decade, banks appear well positioned to weather a potential economic slowdown, in our view.
- European banks look particularly attractive given low valuations, while emerging markets banks are benefiting from the rerouting of global supply chains.
- Digital payments, tech-enabled banking solutions, and growing demand for wealth management services are additional sources of growth for the sector.
IMPORTANT INFORMATION
Financials industries can be significantly affected by extensive government regulation, subject to relatively rapid change due to increasingly blurred distinctions between service segments, and significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition.
Bank loans often involve borrowers with low credit ratings whose financial conditions are troubled or uncertain, including companies that are highly leveraged or in bankruptcy proceedings.
Definitions
10-Year Treasury Yield is the interest rate on U.S. Treasury bonds that will mature 10 years from the date of purchase.
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Originally Posted February 24, 2023 – Research in Action: Banks cash in on rising rates
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