3 U.S. Financial Stocks That Could Benefit If Higher Interest Rates Persist

Markets had spent months expecting gentle rate cuts. Now traders are suddenly gaming out the chance that Fed Chair Kevin Warsh might move in the opposite direction, with higher borrowing costs and louder headlines as inflation stays sticky. That flips the script for big U.S. financial stocks exposed to this news. Read on to see three large-cap banks and financials that could be meaningfully shaped by this potential rate reset.

The stocks highlighted in this article are just a starting sample. The full screen surfaced 41 more large-cap U.S. banks and financials with equally compelling stories that are not covered below. To size up that broader universe, analyze and identify your own highest-conviction ideas directly inside the U.S. Large-Cap Banks and Financials Benefiting from Higher Interest Rates screener.

Independent Bank (INDB)

Overview: Independent Bank Corp., parent of Rockland Trust, runs a community-focused commercial and retail bank that earns most of its money from the interest spread between loans and deposits, making it closely tied to the higher-rate theme of this screener.

Operations: Independent Bank generates about US$949 million of revenue from its Community Banking segment, entirely within the United States.

Market Cap: US$3.9b

Independent Bank sits at the intersection of community lending and rate-sensitive net interest income. This is the focus of the higher-rate screener, and management has been emphasizing that model while upgrading the infrastructure that supports it.

"A strong, low-cost deposit base and focus on scalable digital delivery position the bank for long-term margin protection and competitive advantage."

The key consideration for investors is what could occur if one of the less visible pressures on those spreads were to change direction more quickly than the market anticipates.

If that pressure point is what you care about most, step through the full narrative for Independent Bank to see how Independent Bank’s margin story could be reshaped.

First Merchants (FRME)

Overview: First Merchants is a regional bank holding company that earns rate sensitive net interest income from commercial and consumer customers across the Midwest.

Operations: First Merchants generates about US$642 million of revenue from Community Banking activities, entirely within the United States.

Market Cap: US$2.6b

First Merchants is closely linked to the higher rate theme, with a regional lending and deposit franchise where net interest income responds directly to Federal Reserve moves. The company trades at a P/E of around 13.9x, backed by earnings growth forecasts of about 28.5% a year. The key question is what happens if a single assumption underlying that margin sensitivity changes more quickly than anticipated.

If that single assumption is what you keep coming back to, review the analysis report for First Merchants to see where First Merchants could surprise or stall next.

Ameriprise Financial (AMP)

Overview: Ameriprise Financial provides financial planning, wealth and asset management, and insurance products that tie client cash and investments closely to interest rates.

Operations: Ameriprise Financial generates about US$12.9b from Advice & Wealth Management, US$4.0b from Retirement and Protection Solution, and US$3.8b from Asset Management.

Market Cap: US$49.2b

Ameriprise Financial taps into the higher-rate theme differently from pure banks. It uses its wealth, asset management, and protection franchises to earn spread income on client cash while charging fees on growing advice relationships.

"Continued investment in technology and adviser platforms, including the PracticeTech system, leading to higher adviser productivity and client satisfaction, potentially resulting in increased earnings and improved operational efficiency."

What happens if a single assumption about how client cash is priced against that tech-enabled advice model shifts faster than markets expect?

If that pricing shift on client cash is on your mind, move straight to the full narrative for Ameriprise Financial to see how Ameriprise Financial’s model could be accelerating under the surface.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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