Wells Fargo & Co (WFC), BofI Holding, Inc. (BOFI), Bank of America Corp (BAC): Rising Rates Could Hurt Multi-Bagger Stock

But even that scenario may be too friendly to online banks. The fact of the matter is, traditional bank customers aren’t fleeing from large operators like Wells Fargo & Co (NYSE:WFC). If rates go up, they have no real need to push rates higher — their customers don’t use Wells Fargo & Co (NYSE:WFC) because it offers the best rates.

For BofI Holding, Inc. (NASDAQ:BOFI) and Everbank, rising rates will undoubtedly require that they step up their interest rates in line with increases in short- and long-term rates. That could pressure their net interest margin while big, national operators like Wells Fargo & Co (NYSE:WFC) Bank of America Corp (NYSE:BAC) use their trillions of dollars in low-cost deposits to make much more profitable loans.

The Foolish bottom line
A low rate environment hides the funding cost advantage of traditional banking institutions. While online banks may win on overhead, their funding sources are vastly more expensive, which could depress net interest margin and bottom line profits as rates rise. 

The article Rising Rates Could Hurt Multi-Bagger Stock originally appeared on Fool.com and is written by Jordan Wathen.

Fool contributor Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends BofI Holding and Wells Fargo. The Motley Fool owns shares of BofI Holding and Wells Fargo.

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