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Highlights from Zacks analyst blog: SVB Financial, East West Bancorp and BOK Financial

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Chicago, IL – December 17, 2021 – announces the list of stocks featured on the Analysts Blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: SVB Financial Group SIVB, East West Bancorp, Inc. EWBC and BOK Financial Corporation BOKF.

Here are highlights from Thursday’s analyst blog:

What does the December Fed meeting mean for banks in 2022?

In the final monetary policy decision for 2021, the Federal Open Market Committee (“FOMC”) presented plans to accelerate the rate of reduction of its bond purchases, thus ending the quantitative easing program a few months earlier. provided that. A quicker conclusion of bond buying efforts will position the central bank to hike ultra-low interest rates next year (maybe three times) sooner than expected.

With the increased likelihood of an interest rate hike next year, the S&P Banks Select Industry Index also climbed, albeit marginally. As well, SVB Financial, Bancorp East West and BOK Financial rose 3.4%, 2.1% and 1.8%, respectively, reflecting investor optimism over the favorable development. Major indices like the Dow Jones and S&P 500 rose 1.08% and 1.63%, respectively, at the closing bell.

With inflation nearly four decades away and the unemployment rate hitting pre-pandemic levels, the Fed continues to take a more hawkish stance. Unsurprisingly, there was no change in the target range for the federal funds rate at the end of the two-day FOMC meeting yesterday. The federal funds rate remains at 0-0.25%, which the central bank cut last year amid the coronavirus pandemic.

According to the latest Fed statement, “In light of the evolution of inflation and the continued improvement in the labor market, the Committee has decided to reduce the monthly pace of its net asset purchases of $ 20 billion for Treasury securities and $ 10 billion for agency mortgage-backed securities.

With this, the central bank doubled the cuts announced in November. Prior to that, the central bank had bought $ 120 billion worth of treasury bills and mortgage-backed securities per month to support the economic recovery.

What does the new set of economic projections show?

The central bank has also raised its economic growth projections. According to the latest summary of the Fed’s economic projections, the US economy is expected to grow at a rate of 4% for 2022, up from the previously mentioned 3.8%. The rate of growth is then expected to slow over the next two years, growing by 2.2% for 2023 and 2% for 2024.

Based on updated economic projections, the Fed expects inflation to be 2.6% in 2022, above its 2% target and slightly above the previously reported 2.2%. The unemployment rate in 2022 is expected to be 3.5%, down from the 3.8% previously mentioned.

The 18 policymakers have also indicated the possibility of at least one rate hike before the end of 2022. Interest rates, which have been low since March 2020, could climb to 2.1% by the end of 2024.

What is there for the banks?

Due to the Federal Reserve’s accommodative monetary policy and near zero interest rates, banks have been under pressure on the net interest margin (NIM) since March 2020. Notably, NIM like East West Bancorp, SVB Financial and BOK Financial has experienced downward pressure from 2019 until the third quarter of 2021 due to a rate cut.

Therefore, the faster-than-expected rate hike provides a respite for banks and will improve margins and net interest income (NII), which is a significant portion of turnover. The economic rebound is also expected to stimulate demand for loans, significantly improving bank profitability.

The excess liquidity on the balance sheet, which had hampered margins, will likely have a positive impact on asset sensitivity for most banks in a rising rate environment due to the short-term and high beta nature of liquidity .

As of September 30, 2021, East West Bancorp, SVB Financial and BOK Financial had cash and cash equivalent balances of $ 4.9 billion, $ 18.94 billion and $ 1.89 billion, respectively. Therefore, in the event of rising interest rates, excess liquidity can be used in high interest rate avenues, thus contributing to the growth of interest income.

Currently, East West Bancorp carries a Zacks Rank # 2 (Buy). SVB Financial currently has a Zacks rank of 3 (Hold). BOK Financial currently has a Zacks ranking of 1 (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.

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