Citigroup’s Global Growth Could Help amid Rising Rates
The recent stock market decline was largely due to an expectation of four rate hikes in 2018 as well holdings’ higher valuation. While the Fed has indicated that there could be three or four rate hikes in 2018, considering broad markets’ reaction rate, rate hikes could come slower. Currently, the federal funds rate is 1.5%, and it might stabilize at ~2.3%–2.5%, considering inflation risks. Higher rates have helped banks (XLF) command better net interest margins, which have boosted interest income.
As European, Australian, Japanese, and emerging market central banks are looking at reversing the interest rate cycle, there has been a global sell-off. Monetary policies around the world could lead to the interest rate cycle stabilizing at a lower level than pre-2007 interest rate cycles.
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Lower lending activity
Banks with a global presence could benefit more than banks with mostly US exposure, thanks to their diversified lending activity. Citigroup (C) saw strong growth in lending, investment banking, and asset management in Asia and Europe. Whereas Wells Fargo (WFC) has a strong domestic presence, JPMorgan Chase (JPM) and Bank of America (BAC) are focusing on emerging markets, Asia, and major European markets.
Lower tax rates could also lead to higher operating cash flow, which would lead to early repayments and equity routes for fundraising for future expansion. Retail lending penetration and diversified global portfolios could help banks grow their lending activity.