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Stock Analyst Update

Higher Interest Rates Take a Toll on M&I's Profits

Management hints at creating a tracking stock for M&I Data.

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At first glance, it looks like Milwaukee-based bank Marshall & Ilsley (MI) reported great first-quarter earnings Wednesday of $0.83 per share, beating Wall Street's earnings estimate by a penny. But closer scrutiny shows that the bank cleared the consensus estimate thanks to a one-time $15 million gain from venture-capital investments.

Unfortunately, M&I's operating profits are suffering as interest rates rise. The company's net interest margin--the difference between what it pays for funding and what it earns on its investments--is shrinking. The problem: Loan growth is much stronger than deposit growth. Since M&I doesn't have deposits to fund its loans, it must buy that money elsewhere, and that gets expensive.

Laura Pavlenko Lutton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.