US banks in line for windfall after Covid-19 vaccine progress

US banks in line for windfall after Covid-19 vaccine progress

Profitability boosted by steeper yield curve in wake of vaccine results from Pfizer and BioNTech

US banks stand to reap a rapid and large windfall from an early vaccine for Covid-19 after positive trial data from Pfizer and BioNTech sent long-term interest rates sharply higher.

The dramatic move in the bond market, if sustained, could feed through to improved profits from lending, according to analysts, executives and the banks’ own forecasts.

Stephen Scherr, Goldman Sachs’ chief financial officer, told a conference on Monday that the vaccine news “will be good for banks” by giving rise to “reflationary outcomes” and “more slope to the yield curve”.

The economy could expand faster than previously held if a widely-distributed vaccine allows the loosening of social restrictions and the improved outlook justifies higher interest rates that will improve banks’ income from loans.

The yield on 10-year Treasuries — often used as a rough proxy for rising and falling bank profitability — jumped from 0.82 per cent to 0.96 per cent on Monday on the news from Pfizer and BioNTech before steadying around 0.92 per cent.