More often than not troubles in the banking sector do not only ever stay restricted with one bank, unless of course, the issue is specific to the bank. For instance, if a bank loses its way due to risky investments, then it might not affect the whole sector, but when the issue becomes a structural one, then it is a different situation. On Thursday, analysts stated that the fall in interest rates was going to have a highly adverse effect on retail banking giant Bank of America. The analysts at the firm Raymond James stated that the lower interest rates would eat into Bank of America’s profits and the bank is going to face a tough road ahead in 2020.
The brokerage firm reiterated its outlook about Bank of America by going on to downgrade the status of the stock to market perform from outperform. That being said, it is necessary to point out that over the recent week, analysts from other firms have also pointed out that since Bank of America is highly dependent on lending and deposits, the lowered interest rates will have a negative effect on the bank. Michael Rose, who is an analyst at Raymond James, wrote,
We now see its greater than peer asset sensitivity positing a greater challenge to net interest income given further flattening of the yield curve and the potential for several additional rate cuts from here.
However, the most important take away from the report from the brokerage firm is that it has downgraded the stocks of other small to medium-sized banks in the United States. The logic appears sound, considering the fact that Bank of America is easily one of the largest retail banking institutions in the world. It is important to note that although Bank of America managed to beat analysts’ estimates in its second quarter, there was not much movement in its stock price. In addition to that, the stock price dropped by as much as 7% in August and there were no discernible triggers that could have caused the drop. It is a well-known fact that there is currently a lot of uncertainty in a range of sectors and much of that is down to the crippling macroeconomic issues that have plagued the markets for some time. Only time will tell whether Bank of America can defy these projections.