Slideshow What Bankers Can Be Thankful for This Year

Published
  • November 22 2016, 7:30am EST
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It's the time of year to give thanks, and for bankers some things to be grateful for include rising stock prices, a brightening M&A outlook and, most notably, the potential for regulatory relief under President-elect Donald Trump. Here is a list of developments the industry might be celebrating this Thanksgiving holiday.

Donald Trump's Victory

Though a polarizing figure who railed against Wall Street and globalism on the campaign trail, the president-elect has lately been seen as a champion for the banking industry. His promise to roll back regulations and lower corporate taxes has been music to the ears of bankers who claim that government overreach is stymying loan demand and holding back economic growth. Whether he can keep his promises remains to be seen, but bankers — scarred by eight years of sparring with the Obama administration — are plainly pleased that a business-minded Republican will soon be occupying the White House.

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Finally, an Interest Rate Hike

It has been almost a year since the Federal Open Market Committee raised interest rates, but the industry is cautiously optimistic that the Fed will do so when it meets in December. At a hearing on Capitol Hill last week, Federal Reserve Chair Janet Yellen said that while the economy is still not at full health, it is showing strong enough gains in hiring and overall growth to support a rate hike "relatively soon." For banks, which have been suffering through years of shrinking net interest margins, it can't come soon enough.

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An M&A Comeback?

M&A is finally showing signs of life since the election ended and markets stabilized. Thirteen bank mergers have been announced this month, accounting for 6% of the year's total, and there is general optimism that activity will pick up. "You should see a bit of a rebound," said Chip MacDonald, a lawyer at Jones Day. "If interest rates start going up, you'll see renewed interest in the value of deposits."

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Rebounding Stock Prices

Remember when bank stocks plunged in January and February amid fears of a global economic slowdown? That seems like a distant memory now, as large and midcap bank stocks have far outperformed other sectors — particularly since the election. KBW's index of large bank stocks is up more than 20% year-to-date and 50% since hitting a low of 57.19 in mid-February. Its index of regional bank stocks hit an all-time high last week and is up 30% year-to-date and 18% since Trump defeated Hillary Clinton in the presidential race.

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Stabilizing Energy Prices

What started off as a dismal year for banks that lend to oil and gas firms has turned out to be not so bad. Comerica, Cullen/Frost Bankers, Hancock Holding and many other lenders that reported elevated levels of chargeoffs and delinquencies in the first quarter have seen credit quality improve markedly over the last two quarters as oil prices — which fell below $30 per barrel in February — climbed back into the $40 to $50 range. Where prices are headed is anyone's guess — the Federal Deposit Insurance Corp. has warned that this energy slowdown could have a long tail — but, for now at least, bankers are breathing a big sigh of relief.

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Fintech Fumbles

It has long frustrated bankers that marketplace lenders can compete for their customers without having to worry about complying with various regulations, so they aren't shedding any tears now that the online lending industry is going through some serious growing pains. Lending Club, OnDeck Capital, Prosper Marketplace and Avant have all been forced to scale back their growth ambitions this year as credit quality has weakened and many investors have soured on the sector. Still, online lending is here to stay, so banks would be wise not to gloat too much and instead use this break in the action to figure out how to beat these upstarts at their own game.

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