Insights

1 Massive Berkshire Hathaway Banking Stock That Could Skyrocket

Bank of America (NYSE: BAC) is positioned well to benefit from rising interest rates and market volatility. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributor Matt Frankel discusses why Bank of America is his No. 1 pick.

Matt Frankel: It’s the biggest bank by deposits. Over $3 trillion in assets on its balance sheet. Huge operation. Very set up to be a good beneficiary of interest rates. Now, so is US Bancorp (NYSE: USB). Bank of America, they have roughly $2 trillion in business deposits on their balance sheet. Out of those, $815 billion worth pays zero interest. So, as Bank of America’s interest rates grow, as it can charge more for auto loans, mortgages, things like that, it’s not paying anything on those deposits. So, its margin just grows like that. Let me show you real quick and then we’ll go on to our final question. In this slide, the thing to pay attention to is on that chart, the net interest yield. That’s the bank’s profit margin on that bottom chart. The last thing in that gray box, where it says interest rate sensitivity, a 100 basis point, which means a 1% shift in the interest rate yield curve, is expected to result in $5.4 billion of additional net interest income over 12 months. Now, imagine if interest rates rise by 2%, 3%, 4%. You can see how this could be a big benefit to the bank’s bottom line. It’s a bank that’s well set up to take advantage of rising interest rates, rising inflation, and it has that investment banking arm that takes advantage of market volatility, which is a big reason that I ranked it No. 1 in mine. And it came out to No. 1 for all of us.Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP® has positions in Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

Bank of America (NYSE: BAC) is positioned well to benefit from rising interest rates and market volatility. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributor Matt Frankel discusses why Bank of America is his No. 1 pick.

Matt Frankel: It’s the biggest bank by deposits. Over $3 trillion in assets on its balance sheet. Huge operation. Very set up to be a good beneficiary of interest rates. Now, so is US Bancorp (NYSE: USB). Bank of America, they have roughly $2 trillion in business deposits on their balance sheet. Out of those, $815 billion worth pays zero interest. So, as Bank of America’s interest rates grow, as it can charge more for auto loans, mortgages, things like that, it’s not paying anything on those deposits. So, its margin just grows like that. Let me show you real quick and then we’ll go on to our final question. In this slide, the thing to pay attention to is on that chart, the net interest yield. That’s the bank’s profit margin on that bottom chart. The last thing in that gray box, where it says interest rate sensitivity, a 100 basis point, which means a 1% shift in the interest rate yield curve, is expected to result in $5.4 billion of additional net interest income over 12 months. Now, imagine if interest rates rise by 2%, 3%, 4%. You can see how this could be a big benefit to the bank’s bottom line. It’s a bank that’s well set up to take advantage of rising interest rates, rising inflation, and it has that investment banking arm that takes advantage of market volatility, which is a big reason that I ranked it No. 1 in mine. And it came out to No. 1 for all of us.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP® has positions in Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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