US bank stocks surged on Thursday, driven by a significant rate cut from the Federal Reserve, sparking optimism among investors. Major banks, including Goldman Sachs, Citigroup, and JPMorgan Chase, saw share prices rise by more than 3%, while the KBW Nasdaq Bank index and indexes for regional banks also increased by around 2%.
The rate cuts have historical precedence, with investors hoping for a repeat of the 1995 soft landing, which led to a highly profitable period for banks. However, Moody’s Ratings warned that the cuts could initially be negative for banks' net interest income, a key revenue measure. Depositors' rates are expected to drop slower than loan yields, squeezing margins.
Long-term, Moody’s and RBC analysts expect deposit costs to adjust, improving net interest income and supporting asset quality. Regional banks with exposure to commercial real estate, weakened by previous rate hikes, may benefit the most as demand for commercial loans increases due to reduced economic uncertainty.
The rate cuts have historical precedence, with investors hoping for a repeat of the 1995 soft landing, which led to a highly profitable period for banks. However, Moody’s Ratings warned that the cuts could initially be negative for banks' net interest income, a key revenue measure. Depositors' rates are expected to drop slower than loan yields, squeezing margins.
Long-term, Moody’s and RBC analysts expect deposit costs to adjust, improving net interest income and supporting asset quality. Regional banks with exposure to commercial real estate, weakened by previous rate hikes, may benefit the most as demand for commercial loans increases due to reduced economic uncertainty.