U.S. bank shares decreased on Wednesday, continuing their descent after leading officials indicated a recovery in investment banking would be slower than expected and anticipated reductions in interest income due to impending rate cuts.
These remarks have raised concerns within the sector, which has been under pressure since last year. This occurs during a precarious moment for the economy, as a slowdown in employment raises worries among investors.
“Investors are attempting to navigate several factors that are both optimistic and pessimistic,” commented David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.
“Expected rate reductions will likely shrink net interest income (NII)… yet lower rates are also anticipated to encourage spending. A conflict is emerging to determine whether growth can mitigate the NII decline.”
Bank of America, Citigroup, and Wells Fargo saw declines ranging from 1.3% to 2%. Morgan Stanley dropped by 0.5%, whereas JPMorgan Chase remained mostly unchanged.
These comments overshadowed the Federal Reserve’s concessions, which had announced it would soften a contentious proposal to increase major banks’ capital requirements.
Goldman Sachs shares turned around and were last seen with a slight increase. In a CNBC interview, the bank’s CEO, David Solomon, dismissed the idea that its intended early withdrawal from a credit card partnership with General Motors was “messy.”
JPMorgan led the declines on Tuesday with a 5.2% drop after President and Chief Operating Officer Daniel Pinto remarked that projections for the bank’s 2025 NII—the difference between its loan earnings and deposit payments—were overly ambitious.
Competitors Wells Fargo and Citigroup declined by 1.2% and 2.7%, respectively, on Tuesday, while investment banks Morgan Stanley and Goldman Sachs dropped by 1.6% and 4.4%.
Increased rates had elevated banks’ loan income, but a shift in monetary policy would likely result in smaller-than-anticipated gains.
Morgan Stanley has also projected slightly lower interest income for the third quarter, with President Dan Simkowitz highlighting that merger, acquisition, and initial public offering activities will remain below trend for the rest of the year.
Pinto expects JPMorgan’s trading revenue to either stabilize or increase by 2% this quarter, while Goldman Sachs CEO David Solomon foresees a possible 10% decrease due to sluggish conditions in August.
Citigroup’s CFO Mark Mason informed investors at a New York conference on Monday that market revenues are predicted to decrease by 4%.
Executives’ comments from leading U.S. banks overshadowed the Fed’s revised plan to increase major banks’ capital by 9%, down from 19%.
A preview of the day ahead in U.S. and global markets by Dhara Ranasinghe.
As an intense U.S. presidential debate captures attention, forthcoming U.S. inflation figures have taken a back seat—but perhaps only momentarily.
After all, the consumer price inflation report for August, released later on Wednesday, is the last significant data point before the highly anticipated Federal Reserve rate decision on Sept. 18.
Markets still reflect roughly a 35% probability of an aggressive 50 basis points cut next week (a 25 bps reduction is fully anticipated), so the latest data could influence traders’ rate positions and broader markets.
Economists surveyed by Reuters predict a 0.2% month-on-month increase in both the headline and core consumer price indices, with the headline annual figure expected to drop to 2.6% in August from 2.9% in July.
This would mark the lowest annual inflation figure since March 2021 and might solidify expectations for a modest rate reduction next week, potentially supporting the dollar.
Deutsche Bank economists suggest that rental inflation is noteworthy following a surprising rise in July, raising questions about whether this is a transient spike.
Ahead of the CPI announcement, markets seem to be influenced by Tuesday’s debate between Democratic candidate Kamala Harris and Republican opponent Donald Trump—after which pop icon Taylor Swift declared her intention to vote for Harris.
U.S. Treasury yields are lower, with the dollar (and bitcoin) as well as U.S. stock futures generally weaker, interpreted as a market signal suggesting the debate has given Harris an advantage leading up to the Nov. 5 presidential election.
Post-debate, online betting platform PredictIt indicated Harris’ odds of winning improved by 3 cents to 56 cents for a $1 payout, while Trump’s chances decreased by 5 cents to 47 cents.
The 10-year U.S. Treasury yield fell to 3.605%, the lowest level since June 2023, while the dollar was positioned at 141.68 yen.
