7. A good thing can become a bad thing because of the way bank assets are priced.
Oppenheimer's Kotowski said, "We believe the early phases of the rate cycle will be positive for bank stocks, but the later phases become increasingly risky. We believe that the early phases will be good for bank stocks because they are generally asset-sensitive and also higher rates are driven by a stronger economy and higher loan demand."
His 2013 report noted that "since 1960, there have been six periods of discontinuous rate increases in which short rates on average rose 527 basis points over 35 months. These discontinuous increases significantly elevate risks to banks."
In the short term, as short-term rates rise, banks will be able to benefit through increased net interest margins. But longer term, as longer-term rates also start to rise, the risks to banks include negative impact on their assets: "funding squeezes against long-dated assets, like Jumbo mortgages and MBS; the potential for a 'nuclear winter' in terms of corporate debt issuance; and positioning losses, either in direct trading portfolios or customer portfolios that may be funded with margin debt," Oppenheimer concluded.
8. There is no best bank stock. They are all rate sensitive, but the only thing they are equal at when it comes to rate sensitivity is how much their disclosure about it leaves much to be desired.
Banks have publicly disclosed the fact that they expect a Fed rate hike to be beneficial—they have to. In their annual reports, they rate their asset sensitivity to rate hikes. Bank managements expect a boost to net interest income from the first 100-basis-point increase in rates, according to Oppenheimer's analysis of the bank disclosures. Bank of America, for example, said in its most recent 10-K that if there were a 100-basis-points increase in rates, it would expect an additional $3.7 billion in net interest income in 2014.
JPMorgan Chase estimated $2.8 billion in additional interest income for a 100-basis-point change; more than $4.6 billion for a 200-basis-point increase.
Citigroup put the same estimate at a little over $1 billion—having a lot of assets held overseas is part of the reason its estimate is much lower, Bove said. (Citigroup estimated an additional $629 million in net interest income gains in other currencies.)
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Kotowski wrote, "Banks' disclosure about their rate sensitivity position is generally dreadful, perhaps surpassed in opacity and inconsistency only by banks' shamefully inadequate disclosures around trading." But he concluded, "The impacts vary, and God only knows how comparable the models and numbers are, but we think it is all favorable."
Moszkowski said his research found two-thirds of the banks tend to be right about the impact of rates on their assets, though the order of magnitude never seems to be what they thought.
9. The bank's business mix makes a big difference.
Sandler O'Neill's Siefert said for the regional banks he covers, other than M&A that can't be foreseen, it's the biggest catalyst out there. He said loan growth rates are normal again and the mortgage market has mostly played itself out. Meanwhile, the banks have done what they can on the cost side of the equation. "The rate play is all that's left."
Kotowski said based on his analysis, Bank of America and PNC are the most rate sensitive among the big banks, but the real story is that all the banks are on a boat sailing in the same direction.
The tide will rise for bank stocks again, analysts concluded, when the Fed actually does something.