This story was originally published here.
There’s one key thing investors should be thinking about now. When interest rates are low, it’s a harder environment for many banks to make money. That should be top of mind when considering bank stocks.
You see, financial institutions (FIs) make most of their money on the spread between the interest rate they can borrow at and the interest rate they charge customers.
When rates are low, the spread narrows. And that means banks have less ability to make money on their loans. Plus, their huge cash reserves in U.S. Treasury notes doesn’t yield like it used to.
Now, this time around, the Federal Reserve has pumped money into the system to help banks. And the stimulus packages Congress passed have kept money flowing and kept FIs busy helping small businesses — they get a cut of every loan they shepherd through the Paycheck Protection Program for example.
Let me be clear, though: This doesn’t mean I’m a fan of the major bank stocks. I’m an ex-banking analyst and corporate accountant who got very familiar with the “creative accounting” practices at big banks.
So, now that I’m about to highlight seven of the best bank stocks to cash in on right now, you’ll see that most are regional banks. Further, they have been busy making government-backed loans and have strong positions in their service areas.
Bank Stocks: Merchants Bancorp (MBIN)
This regional bank operates out of Indiana and Illinois and has some interesting side businesses.
First, it finances and services multi-family housing and healthcare facilities. These are two strong areas of growth in the long term.
Also, it provides warehouse financing in the mortgage markets. As you have seen on numerous television ads, there are a large swath of non-bank finance companies that now offer mortgages and other financing tools.
Because they aren’t regulated like FIs, they can compete on rates and stay profitable at lower margins.
But these finance companies still have to buy the loans from an FI, and that’s where the warehouse market comes in. MBIN is a big player in this market, which will certainly grow.
MBIN is off 6.5% in the past year, but it has a solid 2% dividend and room to grow.
Editor's Note: To keep reading, click here.
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