U.S. bank stocks took a hit on Wednesday, continuing their downward trend as concerns mount over the potential impact of interest rate cuts and sluggish recovery in investment banking. Executives from major banks have warned of slower-than-expected growth, raising fears that upcoming Federal Reserve rate cuts could compress net interest income (NII), the difference between what banks earn on loans and pay on deposits.
🔵 US BANKS EXTEND SLIDE AS INVESTORS WEIGH SOBERING OUTLOOK FROM EXECUTIVES
U.S. bank stocks fell before the bell on Wednesday, extending a sell-off that started after executives warned of a slower-than-expected recovery in investment banking and the expected hit to interest… pic.twitter.com/7YTg6uR7iA
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This has created uncertainty among investors, as highlighted by David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, who described the situation as a “tug of war” between the negative impact of rate cuts on NII and the potential for lower rates to boost spending and economic growth.
Leading banks like JPMorgan, Morgan Stanley, Goldman Sachs, Citigroup, and Wells Fargo saw early trading declines. JPMorgan fell 1.5%, while Morgan Stanley and Goldman Sachs dropped by 2.2% and 1.7%, respectively. Citigroup experienced a 2.7% dip, and Wells Fargo was down 2.5%. The decline followed Tuesday’s sharp losses, particularly for JPMorgan, which dropped 5.2% after Chief Operating Officer Daniel Pinto expressed concerns over optimistic forecasts for 2025 NII.
The banks had benefited from higher interest rates in recent months, which increased their loan income. However, the possibility of an easing monetary policy is likely to lead to smaller increases in income going forward. In addition, Morgan Stanley projected lower interest income for the third quarter, with President Dan Simkowitz noting that mergers, acquisitions, and IPO activity are expected to remain below trend for the rest of the year.
Looking ahead, JPMorgan’s Pinto predicted a potential 2% rise in trading revenue, while Goldman Sachs CEO David Solomon warned of a likely 10% drop due to weaker market conditions in August. Citigroup’s CFO Mark Mason echoed this sentiment, expecting a 4% drop in markets revenue.
Bank of America nudges up U.S. minimum wage to $24/hour https://t.co/oOnCQf9j3i pic.twitter.com/GMO1hxeZMy
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Adding to the pressure on bank stocks, Bank of America fell 3% after it was revealed that Berkshire Hathaway had sold additional shares in the bank, following a marginal decline on Tuesday.
Amid these market challenges, the Federal Reserve’s recent announcement of a scaled-back plan to raise big banks’ capital by 9%, down from 19%, has been overshadowed by growing concerns about the economic outlook.
Key Points:
i. U.S. bank stocks fell amid concerns over upcoming Federal Reserve interest rate cuts and slower investment banking recovery.
ii. Major banks, including JPMorgan, Morgan Stanley, Goldman Sachs, and Citigroup, saw notable declines in early trading.
iii. JPMorgan’s Daniel Pinto warned that forecasts for future net interest income were overly optimistic.
iv. Banks face challenges from lower interest rates, which could shrink loan income, and slower merger and IPO activity.
v. Bank of America shares also dropped following Berkshire Hathaway’s sale of shares in the lender.
Charles William III – Reprinted with permission of Whatfinger News
