Though an improving economy later this year could lead to a pickup in loan demand and raise earnings potential for banks, it’s true that traditional banks are struggling with low rates and declining net interest margins. Case in point: Wells Fargo recently reported that its net interest margin fell below 3% for the first time in at least a decade.
However, financial firms with large capital market operations and merger-and-acquisition desks are thriving. Low rates have translated into a surge in mergers and an increase in currency trading, both big moneymakers for investment banks. Just last week, JP Morgan and Goldman Sachs reported strong numbers, with Goldman’s profits at a five-year high.
Looking forward, I see the favorable environment for such financials continuing, and accordingly, I’m still overweight the global financials sector.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.