Fed Rates Weigh on Small-Cap Financial Stocks: Which 4 Companies Could See Growth?

The Fed’s first rate hike in more than three years has prompted investors to reassess the outlook for the financial sector: higher interest rates may support bank margins, but at the same time reduce demand for loans and increase the cost of financing. Oninvest analyst Aldiyar Anuarbekov analyzed 84 liquid financial small-cap stocks and selected four companies that have fallen significantly in price but still have room for a rebound.

Following its September 15–16 meeting, the Federal Reserve unanimously raised the federal funds rate by 0.25 percentage points, to 3.75–4%, as the market had expected. This is the first tightening of monetary policy in more than three years: following a cycle of rate hikes in 2022–2023, the central bank cut rates in 2024 and 2025. The Fed attributed the decision to persistently high inflation and robust economic growth, while CNBC linked the increase in price pressures in part to a sharp rise in oil prices.

Rising interest rates may increase banks’ net interest margins, but the effect is not always positive. Following the Fed’s decision, the KBW Nasdaq Regional Bank Index fell 1.5%: investors fear rising borrowing costs, a decline in demand for loans, and pressure on banks that are particularly dependent on interest income. In the mortgage market, rates have already surpassed a psychologically significant threshold: the cost of a 30-year mortgage reached 7.12%, a more than two-year high, while the number of applications for home purchases and refinancing continued to decline.

Since mortgage rates track the yield on 10-year U.S. Treasury bonds—which has reached a nearly 20-year high—mortgage rates may remain around 7% at least through the end of the year. For small financial companies with less diversified revenue streams and more expensive access to capital, this pressure is particularly acute —although it is precisely among the stocks that have fallen sharply in price that candidates for a rebound may emerge.

Oninvest analyzed 84 liquid, small-cap financial companies with positive return on equity and expected earnings. The selection process took into account stock performance, expected earnings growth, and three metrics: forward P/E—the number of years of future annual earnings the market values the company at, P/B—the ratio of its market value to book value; and ROE—the amount of net income per dollar of shareholders’ equity. The final four picks included stocks that had fallen significantly in price but still showed potential for recovery.

The largest mortgage lender in the U.S. reported a net loss of $451.9 million in the second quarter of 2026, compared with a profit of $314.5 million a year earlier. The main reason was a $603.2 million loss on a hedge established prior to the failed acquisition of the Two Harbors mortgage fund.

To strengthen its balance sheet, UWM suspended dividends and raised $1.65 billion from Oaktree and the CEO’s family, and plans to raise up to another $400 million through a rights offering. According to Morgan Stanley’s estimates, this could reduce the debt-to-equity ratio from approximately 6x to 1.2x. However, the financing is costly: the preferred shares carry a dividend yield of 10–13%, and warrants for 330 million shares pose a risk of significant dilution.

Meanwhile, its core business maintained its scale: in the second quarter, UWM held a 40.5% share of the wholesale mortgage market—more than its next 18 competitors combined. The margin on loan sales rose from 1.13% to 1.33%, although adjusted EBITDA fell by approximately 5% to $185.9 million. According to Oninvest’s calculations, suspending dividends and related payments to shareholders of the operating company could save approximately $640 million per year, based on quarterly shareholder payments of $160 million (Oninvest’s calculation).

Analysts' estimates vary significantly. Barclays maintained its "Overweight" rating (recommendation to buy shares) but lowered its price target from $4 to $2, Deutsche Bank lowered its target price from $3.5 to $1.5 with a “Hold” rating, and KBW lowered its target price from $3.75 to $2.75 with an “Outperform” rating. At a share price of $1.26, these targets imply upside potential of approximately 118%. Barclays’ optimistic scenario, with a valuation of $6, suggests the stock could rise by nearly 380%, but this would require the company to significantly reduce its debt and for the mortgage market to recover.

Fiera Capital of Canada manages 163.5 billion Canadian dollars in assets (approximately $118 billion). In the second quarter, these assets grew by 2.1% thanks to a market rally, which more than offset an outflow of 7.6 billion Canadian dollars from public strategies. Revenue, however, fell by 4.8% to 155.1 million Canadian dollars.

The biggest loss was the withdrawal by a client of 5.3 billion Canadian dollars from portfolios that Fiera managed as a sub-advisor: According to TD Cowen, the mandate was transferred to PineStone, founded by Fiera’s former head of global equities, Nadim Rizk. Another risk arose in August when the company fired its lead Canadian equity manager, Nissim Mansour, and filed a lawsuit against him and five former employees, accusing them of orchestrating a client exodus to a competitor.

The debt burden remains high: Fiera’s official net debt ratio is 3.8, while TD Cowen’s ratio—calculated to verify credit covenants—stands at 3.3, with a limit of 3.5. These risks should be offset by growing cash flow and the more profitable private markets business: it accounts for only 14% of assets but 37% of revenue. Free cash flow over the past 12 months grew by 23.4% to 92.9 million Canadian dollars, roughly double the amount spent on dividends. The company also reduced its semi-annual expenses by 5.5% and extended its share buyback program to 4 million shares. With Fiera Capital’s stock price at 4.38 Canadian dollars, TD Cowen and RBC’s price targets of 5 Canadian dollars imply an upside of approximately 14%, to which a dividend yield of about 9.8% is added.

An Australian alternative asset management firm increased its normalized net income by 108% to 93.3 million Australian dollars (approximately $66 million) in the first half of 2026. Assets under management reached a record 21.4 billion Australian dollars, driven by an inflow of 1.4 billion Australian dollars—the largest half-year inflow in the company’s history.

However, investors were alarmed by the decision of co-founder Phil King, who manages approximately 16% of the firm’s assets, to retire after June 30, 2027. An additional risk is the dependence of profits on fund performance: performance fees account for about half of revenue, and a decline in several strategies in July could reduce revenue in the second half of the year, notes Canaccord Genuity in a research report.

By September 22, the stock price had fallen to 2.3 Australian dollars—about 38% below its annual high. A new source of capital inflows could be the Multi-Strategy Income Fund, scheduled to launch in September 2026, with a target yield of the Reserve Bank of Australia’s policy rate plus 3.5 percentage points.

Analysts at Bell Potter maintained their “Buy” rating with a price target of 4.8 Australian dollars, implying an increase of approximately 109% from the closing price on September 23. Canaccord Genuity has reaffirmed its “Buy” rating with a target price of 3.75 Australian dollars.

In the first half of 2026, an Indonesian digital bank increased its net profit by 6.81% to 294.85 billion rupiah (about $16.4 million), thanks to growth in interest income and improved efficiency. At the same time, the loan portfolio shrank by nearly 12% to 7.13 trillion rupiah (about $394 million), although in the second quarter it grew quarter-over-quarter for the first time since 2024, noted an analyst at CGS International (report on file). Asset quality improved: the non-performing loan ratio fell from 3.10% to 2.99%.

The negative backdrop was driven by the rupee's depreciation of more than 7.4% since the beginning of the year and the Bank of Indonesia's rate hike totaling 1 percentage point, which increased the cost of financing.

As of September 22, the stock had lost about 53% since the start of the year and closed at 222 rupees. BRI Danareksa maintained its “Buy” rating with a target price of 400 rupees, implying an increase of approximately 80%, while CGS International maintained its “Add” rating with a target price of 350 rupees.

This is not intended as individual investment advice.