David Ellison on fundamental headwinds for banks: "they aren't life-threatening"

We don’t have much credit deterioration so far. We do have rates going up and bond prices falling, and there is duration risk. That makes things even worse for the banks, as they borrow short and lend long. That model is broken, but it isn’t broken forever. 

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Over the next six to nine months, banks will be working through the rate issue. So maybe margins will bottom in the next quarter, and then start to improve as asset yields start to catch up with the rise in deposit rates, or cost of funds.

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I’m not sure if the stocks will go down another 30% or another 3%; maybe they have already bottomed. The banks have fundamental headwinds. However, they aren’t life-threatening headwinds. They are just earnings-threatening, to some degree, and they are valuation-threatening.

~ David Ellison, portfolio manager, Hennessy Funds, "Trouble Ahead For Financials. Where to Hide," Barron's, April 29, 2023