Banks and their NIMs

A good commentary, shown below, on banks and NIM sensitivities.

We are roughly equal weight the banks, in our direct equity portfolios.

Our quant measures confirm that bank share prices are positively correlated in line with changes in real interest rates, and it’s the same for various measures that control for the slope of the yield curve. The market definitely thinks rising rates means higher NIM’s meaning higher share prices.

But the effect isn’t that dramatic.

And partly the reason is as per the below, banks used to run large duration mismatches, but, not so large anymore.

The recent bank reporting season did show NIM expansion, as we expect, but not enormous either. That’s why for us the banks haven’t been a “slam dunk” trade, rather one in which w largely just sort to hedge the possibility that it would/could-be material.

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