This Day On The Street
Continue to site right-arrow
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!

Banks Look Forward to Federal Reserve Tapering

Stocks in this article: BAC JPM

NEW YORK (TheStreet) -- Banks expect to benefit from the Federal Reserve's steps to taper bond purchases, though their stocks might not move much higher on the news.

The Federal Open Market Committee will have its policy meeting on Tuesday and Wednesday this week, where it will debate whether the central bank should pull back its massive quantitative easing program that has helped keep long-term interest rates extraordinarily low since 2009.

The timing of the taper is uncertain and depends upon whether the Fed determines the economy is strong enough to begin withdrawing stimulus. The FOMC will be looking at factors such as job growth and unemployment levels, economic growth and inflation.

Irrespective of when the Fed tapers, the move would be welcomed by banks. At a recent Goldman Sachs conference, bank managements were positive about the impact of tapering.

For one, the Fed has said it will taper only if it is convinced the economy is healing and growing, which means banks could finally see opportunities for loan and revenue growth.

Secondly, there is room for an expansion in net interest margins -- the difference between interest earned on loans and other assets and the interest paid on deposits and borrowings. But the upside here is limited so long as the federal funds rate remains in a target range of zero to 0.25%.  The market expects short-term rates to stay depressed until at least 2015.

Still, according to a Goldman Sachs roundup of comments, PNC Financial Services Group (PNC) noted that tapering will "bring some degree of certainty back to the corporate sector again", driving loan growth.

Morgan Stanley (MS) said tapering would coincide with a "healthy" pickup in rate volatility, which would benefit its fixed- income trading business.

JPMorgan (JPM) and Wells Fargo (WFC) said more broadly that tapering would be a sign that the economy is normalizing.

But investors should not rush to bid up all financial stocks.

"Movements in interest rates will not be uniformly good or bad for financial companies' earnings and stock prices, and the effect will vary by sector," Bank of America Merrill Lynch pointed out in a recent note.

Plus valuations in the financials sector are no longer cheap, so tapering is unlikely to trigger a substantial rerating in stocks.

That might only come when short-term rates rise.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

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 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • 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