Rising Beta
A guest post this week from two investors who, like me, have spent their careers looking at banks and financial services companies. Allen Puwalski and Robert Lacoursiere worked together at Paulson & Co., the firm famous for “The Greatest Trade Ever”. They recently reunited to found Cybiont Capital, where they apply a systematic approach to bank research and investing. Here they discuss their outlook for net interest income at US banks. For paid subscribers, a few comments follow from me on Beal Bank and Sculptor Capital Management.
For all the diversification that has taken place in the banking industry over the years, net interest income remains its life blood. Excluding the large money center banks, about 70% of industry earnings in the last 12 months came from net interest income.
Yet the outlook for this revenue line looks challenging. Having benefited from rising rates over the past year – when net interest income rose 4% on average – banks now have to contend with the aftershocks …