With the U.S. Fed expected to raise its benchmark interest rate three times in 2018, analysts and investors will be watching how America’s central bank decides to quickly to increase interest rates this year. While interest rates affect a number of key sectors, perhaps none is affected as much as financials.
With most large U.S. financial institutions expected to see a welcome bump in earnings growth in 2018 due in part to the new tax plan put forward by the Trump Administration and rising interest rates, North Carolina-based BB&T Corp. (NYSE:BBT) is one company with enhanced leverage to interest rates which will prove to be an interesting company to watch this year.
Depending on how the interest rate hiking schedule progresses from the Fed, BB&T will see its profit margins affected nearly in lockstep, due to the fact the bank makes its profit primarily from spread lending. In other words, as interest rates increase on both ends of the yield curve (hopefully), the larger spread between short-term interest rates and long-term interest rates will provide BB&T with a larger profit margin when compared to its peers.
BB&T has also made a number of key acquisitions this pasty year which should impact earnings significantly in 2018; BB&T has focused its core operations in regions of the U.S. market which should outperform the broader financials index, and Canadian financials, significantly in the year to come.
Invest wisely, my friends.
