Poised to benefit from rising rates
JPMorgan Chase & Co. (NYSE:JPM), the largest bank by assets, is all set to benefit from the prevailing rising interest rates. The bank’s CEO was reported saying that JPMorgan Chase & Co. (NYSE:JPM) could make an additional $2 billion if the yield on the 10-year Treasury climbs 100 bps. Investors should expect this amount to touch $5 billion if the yield climbs 300 bps. Besides, it is well positioned to grow its book value despite the rising rates. According to Credit Suisse estimates, JPMorgan Chase & Co. (NYSE:JPM) will report a 1.1% growth in its book value at the end of the second quarter.
Rising rates to hit book value
Wells Fargo & Co (NYSE:WFC) remains one of the least preferred large cap banks as far as its book value growth is concerned amid the prevailing interest rate environment. Its tangible book value is expected to plunge the highest (5%) if the rates go up 100 bps. However, its CFO was reported as saying the bank’s earnings potential would be enhanced if the rates continued to increase.
Higher hopes
For Goldman Sachs Group Inc (NYSE:GS), Citigroup’s analyst believes that a tough June has erased optimism about the strong start to the second quarter. The analyst also believes that Goldman Sachs Group Inc (NYSE:GS) will miss its estimate as the bank’s lending and investing portfolios got hurt due to the recent correction in the risk assets. However, one positive stock price driver for the bank will be that the rising interest rates are signaling a rebounding U.S. economy and not just fears about the unwinding of the QE. Economic recovery could lead to increased capital market activity, which would benefit Goldman Sachs Group Inc (NYSE:GS).
Conclusion
I believe the size-based discrimination by the regulators when it comes to setting the capital regulations for banks is a step in the right direction. The large banks need to be tamed and made safer, while the smaller ones need to be given a push. However, too stringent capital regulations for the large banks will also lead them to report lower earnings and possible shareholder distribution suspensions. Therefore, the regulators must be cautious with the trade-off. I believe JPMorgan Chase & Co. (NYSE:JPM) is best positioned for the current and proposed capital regulations and the interest rate environment.
The article More Stringent Rules for Large Banks originally appeared on Fool.com and is written by Adnan Khan.
Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). and Wells Fargo. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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