Should Investors Normalize Banks’ Securities Portfolios?

Banks are judged largely by their net interest income (NII), which accounts for about 60% of revenue for your typical regional bank (about 40% is from fee income), but NII includes two very different components – income from lending activities and from the bank’s securities portfolio.

“Although securities portfolios contribute a comparatively small share of revenue, it is important to note that the incremental margin on this revenue is much higher than the incremental margin on revenue from lending,” writes Citi analyst Josh Levin. “Although investors typically lump together the NII from lending and the securities portfolio into a consolidated earnings or PTPP number, we believe this is misleading.”

Lending and...

Login required to continue reading.

Setup a free account to get access to this article (no credit card required).

View Full Article

Already a member? Log in here