Although the sector generally surprised to the upside the previous two quarters, Wall Street can’t shake its uneasiness over lenders amid uncertain market conditions.
Just as banks were feeling the benefit of higher rates, their funding costs ballooned. They also have had to worry about higher rates leading to higher defaults among their borrowers—not to mention the hefty unrealized losses they are sitting on in their bond portfolios. The sector has dealt with an especially challenging nine months. In the first quarter, the collapse of Silicon Valley Bank and Signature Bank led to investor apprehension. In the second quarter, worries continued about effects of the failures, along with new regulations aimed at preventing them.
“Assuming we are closer to peak rates than not, higher for longer with a few 2H24 rate cuts is actually ideal for net interest income, bringing modest relief to deposit trends and less pain from floating rate asset repricing, with fixed rate assets continuing to reprice higher,” Erika Najarian, analyst at UBS, wrote Thursday.
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