Rate Outlooks For Banks And The Hit To Consumers

A word on rate expectations, key to the revenue delta for banks. Some have remained conservative, some have been pushed into action and are seeing positive benefits already.

• We’ve reported on 26 sets of bank results since JPMorgan kicked the season off on 12-Apr. The average revenue beat was 2.7%, with only four companies missing expectations (DNB, Handelsbanken, Lloyds and Santander). CET1 ratios were beaten by, on average, 8bp (with only BAC, Deutsche and BNP missing) and loan losses were, on average, 14% better than expectations. So, a pretty solid results season so far.
• However, what’s key now is the rate outlook and how banks are positioning balance sheets and hedging to take advantage, along with what the impact on revenue guidance might be. Some banks indicated they had not (yet) altered guidance to account for “higher for longer”, remaining on the conservative side of the fence.
• Standard Chartered (STANLN: A3/BBB+/A) went further today, however. It had a big hedge roll-off event in Feb-24 such that a positive refi impact was seen for a single month in the quarter just reported. Helpfully, the bank outlined its pre- and post-event rate positioning (see graphic), the extent of which highlights the more positive revenue outlook banks are now enjoying.
• From a macro standpoint, this improved revenue for banks implies a negative impact for consumers, both those in debt seeing rates pushing back higher (we are already seeing fixed rate mortgage pricing moving) but also the lack of feed through to savers who are not enjoying the forward curve move. This also has a wider socio-economic impact, stretching the barbell between the net liquid and the net borrowers again.