Sept 11 (Askume) – U.S. bank stocks fell on Wednesday as executives warned of a slower-than-expected recovery in investment banking and the potential impact on interest income from low interest rates.
The comments raised concerns about the industry, which has been under pressure since last year. It’s also a delicate time for the economy, as a slowdown in the labor market has spooked investors.
“Investors are trying to reconcile some of the bullish and bearish dynamics,” said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
“Rate cuts are expected to reduce net interest income (NII)…but lower interest rates are also expected to help stimulate spending, and this has triggered a tug-of-war to see whether economic growth can keep NII from shrinking.”
Bank of America (BAC.N) , Citigroup (CN) and Wells Fargo (WFC.N) fell between 1.3% and 2%. Morgan Stanley (MS.N) fell 0.5% and JPMorgan Chase (JPM.N)
was little changed.
Those comments masked concessions from the Fed that it said would weaken a controversial plan to raise capital for big banks.
Goldman Sachs (GS.N) shares have been in a positive trend recently with slight gains. In an interview with CNBC, the bank’s CEO David Solomon denied that General Motors Co….Plans to exit its credit card partnership with GM.N early were “in disarray”.
Overly Optimistic NII
JPMorgan Chase dropped 5.2% on Tuesday after President and Chief Operating Officer Daniel Pinto said the bank’s forecast for 2025 NII, the difference between loan income and deposit expense, was too optimistic.
Rivals Wells Fargo and Citigroup fell 1.2% and 2.7%, respectively, on Tuesday, while investment banks Morgan Stanley and Goldman Sachs dropped 1.6% and 4.4%, respectively.
Rising interest rates have boosted bank loan income, but easing monetary policy will lead to slower-than-expected growth.
Morgan Stanley also forecast a modest decline in interest income in the third quarter , and Chairman Dan Simchowitz said mergers, acquisitions and initial public offering activity would remain below trend for the rest of the year.
Pinto expects JPMorgan’s trading revenue to be flat or grow 2% this quarter, while Goldman Sachs Chief Executive David Solomon expects trading revenue to decline 10% due to sluggish August conditions.
Citigroup Chief Financial Officer Mark Mason told investors at a conference in New York on Monday that the market expected revenue to decline by 4%.
Comments by top U.S. bank executives echoed the Federal Reserve’s revised plan to reduce big banks’ capital share to 9% from 19%.
