These 3 Banks Fell by as Much as 24%. Which One Will Benefit from Higher Rates?
The Fed raised rates for the first time since 2023, and the market started selling banks that, according to the textbook, should benefit. But Bank of America, Goldman Sachs, and Wells Fargo each got a completely different bill from the Fed. One of them may even profit from it.
Key points
The Fed raised rates for the first time since 2023, and the market immediately started selling banks that, according to the textbook, should benefit
Goldman Sachs reported record earnings of 17,01 USD per share, yet its stock is still nearly 20% below its high
Bank of America paid a 1,2 billion USD fine, and one figure simultaneously boosted its margin and hit its trading business
Wells Fargo increased its loan-loss provisions by 51% just as it accelerates lending to American households
One line in the January 14 earnings report will show whether this is just a correction in sentiment or the start of a credit cycle
The Fed raised rates, and the market is selling those meant to benefit
The textbook says higher rates help banks: they earn more on the difference between the interest they pay on deposits and the interest they charge on loans. On September 16, the Fed raised rates by 25 basis points to 3,75-4,00 % for the first time since 2023, due to inflation fueled by expensive oil, and signaled another hike before the end of the year. Investors reacted as if a recession were coming.
In the month before earnings were released, Bank of America $BAC lost 13,9 %, Goldman Sachs $GS 13,1 %, and Wells Fargo $WFC 7,7 %, while the S&P 500 index gained 1,8 %. The results then brought record earnings for Goldman and double-digit earnings growth for Wells Fargo—and the stocks still didn’t recover.
Bank | Price (Nov. 4) | 52-week high | Below high | P/E |
|---|---|---|---|---|
Bank of America | 51,63 USD | 65,22 USD | -20,8 % | 11,1 |
Goldman Sachs | 928,00 USD | 1 153,99 USD | -19,6 % | 12,2 |
Wells Fargo | 87,43 USD | 97,76 USD | -10,6 % | 11,4 |
The market is selling the sector as a package and fears that rate hikes mark the start of a credit cycle in which borrowers stop making payments. But the same Fed decision sends each of these three banks a completely different bill.
Bank of America: the same 85 basis points both help and hurt
Of the three, Bank of America is the most sensitive to interest rates, in both directions. Net interest income (the difference between the interest a bank collects and the interest it pays) grew 8% in the third quarter to 16,6 billion USD, and net interest margin rose to 2,16 %, up 15 basis points year over year. CFO Alastair Borthwick expects growth of at least 8% in 2027 as well, and his outlook directly assumes three more Fed rate hikes by June 2027.
But in the same quarter, market rates jumped by 85 basis points, hurting bond trading. Bond trading revenue fell 17% to 2,55 billion USD, revenue missed estimates by around 570 million USD, and on top of that came a 1,2 billion USD fine for shortcomings in anti-money-laundering controls. Earnings per share came in at 0,91 USD, versus 1,04 USD a year earlier; without the fine, they would have been 1,08 USD. The stock lost nearly 5% on October 14.
From its high of 65,22 USD, the stock fell as low as 49,66 USD in the October sell-off, a drop of 23,9 %, and closed at 51,63 USD on November 4. The fourth quarter will determine whether net interest margin grows faster than the bond market takes away.
“That’s just what happens when rates jump by 85 basis points in a single quarter—it generally isn’t good for these businesses.”
Alastair Borthwick, CFO of Bank of America
Goldman Sachs: the bank that barely cares about the Fed
Goldman Sachs earned 17,01 USD per share in the third quarter, versus 12,25 USD a year earlier; revenue rose 23% to 18,68 billion USD, and return on equity reached 18,7 %. Net interest income accounted for only about 3,8 billion USD of that. Fed rates barely move Goldman.
The engine is elsewhere. Equities trading revenue jumped 72% to 6,44 billion USD, and equity financing—mainly loans to hedge funds—grew 96% to a record 3,37 billion USD, driven largely by Asia, where demand for this financing exceeds banks’ capacity. Goldman is like a car dealer that makes more money on the loans it arranges than on the cars themselves.
That’s where the risk lies. These revenues don’t turn on interest rates, but on leverage: when stock markets fall and funds sell off their positions, they can disappear quickly. Goldman also acknowledged that its investment-banking pipeline of pending deals declined compared with the second quarter. The stock is 19,6 % below its high of 1 153,99 USD, even though earnings are at a record. The market isn’t paying for the Fed; it’s paying for cyclicality.
“Financing has become a larger and more resilient part of our markets businesses and has represented over 40% of FICC and equities revenue since the start of the year.”
David Solomon, chairman and CEO of Goldman Sachs
Wells Fargo: the smallest drop, the biggest question mark in lending
Wells Fargo has fallen the least from its high, down 10,6 % to 87,43 USD, and was the only one of the three to rise over the past month (+7,4 %). Earnings per share rose 13% to 1,87 USD, net interest income increased 5% to 12,5 billion USD, and management reaffirmed its full-year outlook of roughly 50 billion USD, with around 13 billion USD expected in the fourth quarter.
But it’s the most domestically focused bank of the three: no Asian hedge funds; its earnings depend on American consumers and businesses. And this is where the group’s only real credit question mark lies: loan-loss provisions jumped 51% year over year to 1,03 billion USD. The bank attributes this to loan growth: average auto-loan balances rose 31%, and business lending also grew. Although the charge-off rate fell to 0,38 % of loans from 0,40 % a year earlier, it rose by 8 basis points quarter over quarter to 0,18 % for business loans.
In other words, Wells Fargo is accelerating lending just as the Fed is making money more expensive. CEO Charlie Scharf acknowledged that higher rates, expensive oil, and inflation pose risks to the economy, but said they are currently outweighed by investment in AI, employment, and wage growth. If he’s wrong, it will show up here first.
“We continue to monitor a range of macroeconomic and industry risks, including higher interest rates, inflation, geopolitical uncertainty, and AI-related disruption. But so far, we haven’t seen signs of broad-based credit deterioration. Losses remain isolated and driven by the circumstances of individual borrowers.”
Michael Santomassimo, CFO of Wells Fargo
What will decide the outcome: three banks, three different triggers
The first date to watch is the Fed meeting on December 16: a hawkish dot plot would confirm the scenario Bank of America has built into its outlook. Then come the fourth-quarter results: Wells Fargo on January 14, Bank of America on January 15, and Goldman Sachs on January 19, 2027. Each bank has a different metric worth watching:
Bank of America: net interest income above 16,6 billion USD and a calmer bond market would be positive signs; further regulatory costs or continued weakness in trading would be negative.
Goldman Sachs: hedge-fund financing volume and a recovery in the M&A and IPO backlog sustain the story; a sharp stock-market drop and fund deleveraging would break it.
Wells Fargo: provisions and charge-offs on auto and business loans; if the bank maintains its 50 billion USD outlook and charge-offs don’t accelerate, the provisions were simply the cost of growth.
That points to two scenarios. In the first, this is a correction in sentiment: the Fed holds or raises rates, borrowers keep making payments, and Bank of America and Wells Fargo benefit from higher margins—with Bank of America having the most upside if the bond market calms down. In the second, rate hikes mark the beginning of a credit cycle: provisions keep rising, Wells Fargo feels the biggest impact, and Goldman, with no large loan book, is paradoxically the most resilient—until the stock markets its financing depends on fall.
Analysts are still betting on the first scenario: consensus targets are 65,92 USD for Bank of America, 1 156,75 USD for Goldman, and 99,13 USD for Wells Fargo.
