This Day On The Street
Continue to site
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

Rising Rates Seen As Bullish for Financial Stocks

NEW YORK ( TheStreet) -- The rising interest rate environment should benefit many financial stocks, as a steeper yield curve spells improved profit margins in their traditional business of borrowing short term and lending long term, analysts say.

Bank stocks initially sell off as interest rates begin to rise, though investors should expect that to change over time, Sandler O'Neill strategist Robert Albertson told Bloomberg News Monday.

"With the rates this low, most investors I talk to recognize the relief in rates--up--is going to drive margins, so it's a positive for wealth," Albertson said.

Accordingly Citigroup, upgraded several broker dealer and asset management stocks on Monday.

The Charles Schwab Corporation (SCHW - Get Report) and FXCM (FXCM) were among broker dealers receiving upgrades from Citigroup on the view that Federal Reserve "tapering" of its unprecedented stimulus will ultimately benefit the sector.

Broker dealers will "remain defensive should equities markets correct (likely due to rates normalization) but outperform should markets bounce on outsized EPS leverage and pro-cyclicality," argue Citigroup's analysts, who upgraded the sector to Neutral/Positive from Negative/Neutral.

In addition to upgrading Schwab to "buy" from "sell" and FXCM to "buy" from "neutral," Citi's analysts raised price targets on TD Ameritrade (AMTD) and LPL Financial Holdings (LPL).

Citigroup also expects U.S, focused asset managers to benefit from a more hawkish Federal Reserve, and its analysts argue T. Rowe Price (TROW - Get Report) is "the best U.S. equities play in the sector." They upgraded T Rowe price to "buy," and lifted Eaton Vance (ETN) to "neutral" from "sell." However, they lowered price targets on global managers including Alliance Bernstein (AB), Franklin Resources (BEN - Get Report), BlackRock (BLK - Get Report) and Legg Mason (LM).

Schwab's new $24 price target compared to a $20.64 closing price Friday. The low interest rate environment has forced the broker dealer to waive fees it traditionally charges investors in its money market funds. Higher interest rates means it can begin charging those fees once again. Further, Citigroup's analysts expect Schwab will see improved net interest margins by borrowing short and lending long.

In his annual shareholder letter, JP Morgan (JPM - Get Report) chief Jamie Dimon warned about rising interest rates, but noted the bank could benefit handsomely.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BLK $352.08 -0.03%
BEN $35.83 -0.56%
JPM $61.24 -0.54%
SCHW $27.54 0.00%
TROW $74.34 0.07%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs