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Bank of America (NYSE: BAC) is well positioned to take advantage of rising interest rates and market volatility. In this clip from “The Rank” on Motley Fool Live, recorded on April 25Motley Fool contributor Matt Frankel explains why Bank of America is his No. 1 choice.
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Matt Frankel: It is the largest deposit bank. Over $3 trillion in assets on its balance sheet. Big operation. Very set up to be a good beneficiary of interest rates. Now it’s the same American bank (NYSE:USB). Bank of America, they have about $2 trillion in corporate deposits on their balance sheet. Of these, $815 billion earns no interest. So, as Bank of America’s interest rates go up, because it can charge more for car loans, mortgages, etc., it pays nothing on those deposits. So his margin grows like that. Let me show you very quickly, and then we’ll go to our last question. In this slide, the thing to pay attention to is on this graph, the net interest yield. That’s the bank’s profit margin on this bottom graph. The last thing in that gray box, where it says interest rate sensitivity, a basis point of 100, which means a 1% shift in the yield curve, should translate to 5 $.4 billion in additional net interest income over 12 months. Now imagine if interest rates increase by 2%, 3%, 4%. You can see how this could be a big plus for the bank’s bottom line. It’s a bank that’s well organized to take advantage of rising interest rates, rising inflation, and it has this arm of investment banking that takes advantage of market volatility, which is one of the main reasons I ranked it #1 in mine. And it came out #1 for all of us.