This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

2 Banks to Benefit the Most From a Steeper Yield Curve

First Horizon National (FHN), Regions Financial (RF) and Zions Bancorporation (ZION) "have more than 70% of their respective assets in the tactical pool (assets with maturities or repricing under one year), while less than 50% of their respective funding would be in the tactical pool," according to Mosby. "This leaves 20% of their balance sheets ready to reprice when short-term rates begin to rise, with no corresponding increase in funding costs tied to those assets."

These banks would see their net interest margins increase by roughly 40 basis points if the Federal Reserve were to raise the federal funds rate by 1 percentage point, according to Guggenheim's data. "However, we would not expect this impact until late 2014 or early 2015," Mosby wrote.

For some investors, that's a long time to wait. In the meantime, a steepening yield curve allows banks "that have more strategic assets than strategic funding sources to take advantage of those higher interest rates to help stabilize their net interest margins as we move further into 2013," according to Mosby.

Wells Fargo (WFC) and State Street (STT) "would benefit the most from a yield curve steepening," among the large-cap banks covered by Guggenheim. Mosby said that "these are the only two banks in our coverage that have more assets than funding sources in the strategic pool (assets and funding with maturities over three years)."

As part of his analysis, Mosby used Moody's forecasts that 5-year market rates would rise by about 70 basis points over the next six months, with 1-year rates rising by another 50 basis points. Moody's is also forecasting that "the 5-year and 10-year securities to be approximately 150 basis points and 110 basis points higher than their current levels, respectively."

Wells Fargo's fourth-quarter net interest margin was 3.56%, narrowing from 3.66% in the third quarter and 3.89% in the third quarter of 2011. The company's net interest income was $10.64 billion in the fourth quarter, declining from $10.66 billion the previous quarter and $10.89 billion a year earlier. If the Fed takes no action, while the yield curve steepens by 1 percentage point, Mosby estimates that Wells Fargo's net interest margin will widen by 20 basis points to 3.66%.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,919.59 +80.85 0.48%
S&P 500 1,981.60 +9.86 0.50%
NASDAQ 4,527.5140 +19.2020 0.43%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs