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Interactive Brokers: Stabilizing Net Interest Margins in Q2 2018

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What could drive interest income?

The hawkish monetary environment since 2015 has helped banks and lenders improve their interest income on higher spreads. The Fed has already raised rates twice and is looking at two more rate hikes in 2018. The flattening yield curve indicates no major room for margin expansion for future rate hikes. So Interactive Brokers and other commercial banks can see subdued growth in net interest income.

Interactive Brokers Group’s interest income also depends on customer margin loans since that’s a component of its average interest-earning assets. Customer margin loans keep clients’ securities as collateral. So if the markets see a sharp decline, the value of the collateral might fall, and the company may not offer margin loans. Lower margin loans would lead to less interest-earning assets.

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A look at IBKR’s net interest income

In the second quarter, Interactive Brokers Group is expected to report net interest income of $255.1 million. Its interest income can be impacted by trade tensions. A rise in trade tensions could lead to a fall in the markets, and IBKR might not offer customer margin loans. However, in the short term, trade wars could prompt investors to reshuffle their current holdings.

Interactive Brokers Group’s competitors (VFH) are expected to report the following net interest income in the second quarter:

  • Charles Schwab (SCHW): $1.4 billion
  • E*TRADE Financial (ETFC): $466.3 million
  • TD Ameritrade Holding (AMTD): $315.4 million
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