“Life in a flat yield curve, life in an inverted yield curve is awful. Life in an increasingly positively sloped yield curve is much more pleasant – let us hope that that happens. I think the odds of that happening are relatively minimal, however,” he concluded.
Not everyone shares the trader’s pessimism, however, with analysts from Jefferies in a recent research piece acknowledging the difficulties ahead for banks but articulating more bright spots.
“While turbulence in D.C. policy-making has taken a bite out of the post-election bank rally, investor sentiment is still relatively positive with another rate hike in the books and more likely on the way. Loan growth is the first quarter soft spot and biggest forward wildcard, but we believe full-year loan growth guides should remain intact for now on hopes for a better second half,” said the research.
The analysts were also keen to emphasize the challenges ahead were more likely to weigh on smaller and mid-tier banks rather than the largest, global institutions.
“While sluggish loan growth in the first quarter is likely to impact the majority of banks to some extent, large-cap banks could benefit from offsets such as stronger investment banking fees and trading revenues. Mortgage production is expected to decline significantly versus the fourth quarter but servicing should be stronger – which also tends to help the larger banks,” the note added.
