Large financial stocks are slowing down as the fixed-income market diminished expectations for a Fed rate hike anytime soon – higher interest rates bolster banks as lenders earn more from their loans. [Uptick in Rates is a Boon for Bank ETFs]
Moreover, small banks have been left relatively unscathed by the recent bout of litigation fees and regulatory fines levied onto the larger banks. For instance, the world’s biggest banks, including JPMorgan (NYSE: JPM) and Citigroup (NYSE: C), among others, are finalizing plans to collectively pay over $6 billion for allegedly manipulating foreign exchange markets.
“If you look overall since the financial crisis, you have continued regulatory pressure on big banks,” Cannon added.
Nevertheless, Gerard Cassidy, head of bank equity research at RBC, argues that big banks could turn around if the Fed funds rate is 25 to 30 basis points and volatility helps fuel capital markets businesses.
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Max Chen contributed to this article.