NEW YORK (TheStreet) -- Wells Fargo (WFC), JPMorgan Chase (JPM), SunTrust Banks (STI) and City National Corp. (CYN) are the banks best-positioned for a flatter U.S. Treasury yield curve now that the Federal Reserve has flattened it in a move dubbed "Operation Twist," according to a research report published Wednesday from Evercore Partners.
There has been widespread speculation that the Fed will perform Operation Twist -- which would aim to raise short term interest rates while pushing down long-term rates, according to Evercore's note. The hope is that the move would attract foreign capital while keeping financing costs low, the report states.
Overall, Operation Twist would be bad for banks long term because it would negatively impact net interest margins, which represent the difference between banks' cost of capital and what they can charge borrowers.
However, it could offer short-benefits to banks by allowing them to get better returns on new cash coming onto the balance sheet from maturing loans. Those loans have been viewed by the market as having a high "reinvestment risk," because the cash must be reinvested at lower yields than the older loans had been generating.Banks likely to see the "greatest relief to downside reinvestment risk include those with larger portfolios but shorter durations and a higher concentration of securities maturing in three years," the report states. Examples of such banks include SVB Financial Group (SVB), City National and Commerce Bancshares (CBSH). Still, Wells, JPMorgan, SunTrust and City National are the best positioned for the new environment because they have "greater top-line diversification and above peer [balance sheet] growth prospects," according to the report. -- Written by Dan Freed in New York.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV