Banks stocks, like all other wall street and global stocks, have taken a beating so far in 2022. With stocks plummeting in the wake of continuously rising interest rates, the general consensus is that banks should be benefitting. This is because higher interest rates enable banks to generate better returns on their idle cash, increasing their profitability and improving their growth.
However, the financial sector has not benefitted much, and experts believe it is because the rates are rising too much, too quickly. For context, the Fed’s Target Fund Rate has gone from near 0% to 3.25% in a little over six months, which is one of the quickest rates of increase in its history. Raised interest rates, especially when implemented as has been the case this year, raise the risk of recession, which is terrible for banks. This is because financially strapped customers may stop paying their loans off, resulting in an increase in delinquencies. Additionally, if the economy is crumbling, it’s likely that loan volume will decline.
However, with current valuations, and interest rates set to remain high, an opportunity of undervalued bank stocks that provides investors with good buying opportunities for what can be considered a value stock. Below we analyze bank stocks that currently offer great value.