Large Cap Banks: Some Hit To TCE From Higher Rates - Bigger Hit From HTM For Some Banks But Manageable

Following up on our note last week on the impact from higher rates titled Analyzing Implications of Higher Rates: Positive for NII, Some Hit to Capital; Key Is Impact on Economy, dated October 2, we are adding some further thoughts. There have been some concerns about decline in tangible common equity (TCE) ratios at 9/30 due to the sharp rise in long term rates, especially if HTM securities are marked to market. The concerns are about whether there are any banks (large or small) at risk of a crisis similar to the 2023 regional banking crisis, and the impact on share buybacks for banks. Banks in our coverage universe have adequate liquidity and saw deposit inflows in the 2023 crisis. Higher rates and the recent steepening of the yield curve should be positive for net interest income - the outlook for net interest income should also benefit several of our banks with the forward curve incorporating more rate hikes. Our banks will see some impact from this surge in long term rates with pr