Is it time to buy bank stocks in a rising interest rate environment?
What banks do in the second half of this year and into 2023 will depend a lot on what the Fed does and how it reacts. In this Motley Fool Live excerpt from “Ask Us Anything”, recorded on April 11Fool.com contributor Lou Whiteman explains why simply buying good companies and keeping them may be the best approach right now.
Lou Whiteman: Basically, banks are in the business of buying and selling money. It’s a very pure business and so the rates, the spread between what they borrow or your savings rate and what they lend, your lending rate is how they make their money. Almost universally, rates on the lending side go up first, so banks, in normal times, have a real shot in a rising interest rate environment. They rate loans first before or more aggressively than they come back by increasing your savings rates and they tend to make more money. I guess according to ProShopGuy, yes, we will see that in the coming quarters. Whether it’s sustainable or not and whether or not there’s advice, I tend to agree with Jamie, that there’s the greatest free get out of jail card of any company that will give advice this year between what the Fed is doing with Ukraine, with supply chains, with energy prices. Why bother giving advice? You have so many excuses not to, so I’m not going to blame them for that.
But I mean it, again I tend to be the one who fears that inflation will last much longer than some say I’m not really in the Transtar camp but again to use this word again and again this morning what the business side of the banks will do in the second half of this year through 2023. Much will depend on what the Fed does and how it reacts. It’s really hard to say if this is sustainable, but the best banks know how to handle it. Buy good companies and keep them.