Flat Yield Curves Kill
The Fed bumped interest rates up 25 basis points today. Although most analysts expected the increase, there was a slight chance the fed might have kept rates where they were because of hurricane Katrina.
Related to the move by the Fed today, the NY Times ran a story about the effect that higher short term interest rates have on the earnings of banks. In short, when short term interest rates approach long term interest rates, banks can’t make any money.
Snip…
“Unfortunately, that concept has now run up against a fundamental of the banking business: borrow cheap and lend high. This year, the gap between short-term and long-term interest rates has narrowed, leaving little room for retail-focused banks like Commerce to profit that way.
As a result, the highflying shares of Commerce fell to earth last week after the bank warned that earnings would not meet Wall Street expectations for the rest of the year. The stock, which closed yesterday at $31.16, is down 7.7 percent from the closing price before its Sept. 12 warning.”
More…
Related to the move by the Fed today, the NY Times ran a story about the effect that higher short term interest rates have on the earnings of banks. In short, when short term interest rates approach long term interest rates, banks can’t make any money.
Snip…
“Unfortunately, that concept has now run up against a fundamental of the banking business: borrow cheap and lend high. This year, the gap between short-term and long-term interest rates has narrowed, leaving little room for retail-focused banks like Commerce to profit that way.
As a result, the highflying shares of Commerce fell to earth last week after the bank warned that earnings would not meet Wall Street expectations for the rest of the year. The stock, which closed yesterday at $31.16, is down 7.7 percent from the closing price before its Sept. 12 warning.”
More…
posted by Little_Silvered at 4:56 PM
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