Interest rates: For American banks, Powell matters more than Putin
Worries over Russia-linked loans are therefore unlikely to give Powell pause on rising interest rates at next week’s Fed meeting. After all, there doesn’t seem to be any risk of a Russian contagion spreading to the US banking system.
Italian, French and Austrian financial companies have more exposure to Russia than to the United States – and their banking systems are not as large as those of the United States, so their risk from Russia is higher. It’s a key reason why shares of UniCredit in Italy and Societe Generale in France have each fallen more than 35% in the past month.
Banks in Germany, the Netherlands and Switzerland – which also have smaller economies than the United States – all also have relatively high exposure to Russia, according to data from the BIS and Wells.
So investors in big US banks might breathe a little easier knowing that exposure to Russia is low – and that the Russian-Ukrainian conflict is unlikely to alter the Fed’s plans to gradually raise interest rates. interest.
What US banks fear
“Rising energy prices, rising commodity prices and the prospect of slowing economic growth due to lower spending put the Fed in a tough spot,” said Gerald Sparrow, managing director. investments at Sparrow Capital Management, in a recent note to clients. “The inflationary impact of these factors could be substantial.”
If the Fed is forced to raise rates more aggressively than currently expected to curb inflation, it could eventually push interest rates to levels that would be punitive for consumers and businesses looking to borrow money.
In other words, any benefit banks would derive from higher rates increasing loan profits could be more than offset by the grim reality that demand for loans would likely dry up.
“The Fed has to deal with inflation. Banks are currently overvalued at this point,” said David Wagner, portfolio manager at Aptus Capital Advisors. “They’re facing a perfect storm of slowing economic growth and declining profits.”