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4 Bank Stocks to Buy on Yellen's Rate Hike Signal

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Rate hike continues to be a topic of much disputation ever since the Federal Reserve hiked the interest rate for the first time in almost a decade last December. As each Fed meeting approaches, the dollar is seen to strengthen, mortgage rates move up and gold falls, only to be later disappointed by the Fed's cautious stance.

However, this time things look quite optimistic. Fed Chair Janet Yellen, in her most recent speech at Harvard University, seemed ready to strike while the iron is hot.

"It's appropriate…for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate," Yellen said during a panel discussion at the hallowed university. In support of the hike Yellen also said, "Growth looks to be picking up from the various data we monitor."

Her comments open the door for a possible rate hike at the Fed's next policy meeting during Jun 14-15 or at its gatherings in July or September. The confidence comes on the heels of improving consumer spending, labor markets, housing-market activity, retail sales and industrial production.

Moreover, the modest growth of the U.S. economy in the first quarter reflected its resilience to financial market volatility and a global slowdown. The majority of policy makers are in favor of increasing interest rates as early as June, if economic data continues to be strong.

Therefore, it seems to be the perfect time to keep a tab on stocks that would benefit from an interest rate hike. An interest rate hike will ease some of the pressure on net interest margin (NIM) - a key source of banks' earnings.

Also, banks will earn more from the money that they need to keep at the Fed compared with almost no income from this source in a near-zero rate environment that has prevailed since the last financial meltdown. Moreover, a rising interest rate sends signals of healthy economic growth, which can only mean lesser non-performing assets for the banks.

4 Banking Stocks to Bet On

With the help of the Zacks Stock Screener , we have shortlisted 4 stocks in the banking industry that sport a Zacks Rank #1 (Strong Buy) or #2 (Buy). Interest income form a substantial part of their revenues and therefore, these are well positioned to gain from a rate hike.

UMB Financial Corp.UMBF is a financial services holding company engaged in providing complete banking, asset management, health spending solutions and related financial services to commercial, institutional and personal customers nationwide. This Zacks Rank #2 company generates at least 40% of its revenue through net interest income (NII).

Notably, according to the company's filings, the company's NII should increase in a rising rate scenario due to an increase in yields on earning assets. According to UMB Financial's projections, a 100-basis-point increase (1 percentage point) in rates will add $6.2 million to its NII.

PrivateBancorp, Inc.PVTB operates as the holding company for The PrivateBank and Trust Company. The latter provides customized business and personal financial services to middle market companies, business owners, executives, entrepreneurs and families in the U.S. This Zacks Rank #2 company generates more than 80% of its revenue through NII.

The company's margin and NII increased in the first quarter owing to the fourth quarter's rise in short-term interest rates. According to PrivateBancorp's estimates, a 100-basis-point increase (1 percentage point) in rates will raise its NII by 7.2%. Alternatively, a 50-basis-point drop (-0.5 percentage point) will result in a 5.2% decline in NII.

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Popular, Inc.BPOP is a diversified, publicly owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The company has operations in Puerto Rico, the United States and the Caribbean and provides various retail and commercial banking products and services primarily to institutional and retail customers through its subsidiaries. This Zacks Rank #2 company earns over 75% of its revenue through NII.

According to the company's filings, a rising rate scenario reflects parallel changes of 200 and 400 basis points during the twelve-month period ending Mar 31, 2017. Under a 200 basis point rising rate scenario, 2016 projected NII will increase by $96 million, while under a 400 basis point rising rate scenario, 2016 projected NII will rise by $188 million.

Wintrust Financial Corp.WTFC is a bank holding company which provides banking services, trust and investment services, commercial insurance premium financing, short-term accounts receivable financing and certain administrative services. This Zacks Rank #1 company earns more than 70% of its revenue through NII.

According to the company's filings, a 100-basis-point increase (1 percentage point) in rates will result in an 8.9% increase in NII. Alternatively, a 100-basis-point drop will lead to an 8.7% decline in NII.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

WINTRUST FINL (WTFC): Free Stock Analysis Report

UMB FINL CORP (UMBF): Free Stock Analysis Report

PRIVATEBANCORP (PVTB): Free Stock Analysis Report

POPULAR INC (BPOP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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