US Banks Continue Decline as Investors Evaluate Executives’ Grim Forecasts – Reuters

U.S. Bank Stocks Decline Amid Investment Banking Concerns

By Pritam Biswas

U.S. bank stocks experienced a downturn on Wednesday, with top executives signaling a slower recovery in investment banking than anticipated, alongside fears of a hit to interest income due to impending rate cuts.

These comments have raised alarms about the banking sector, which has been facing challenges since last year. The situation is further complicated by a slowing labor market that is unsettling investors.

"Investors are attempting to navigate various factors that present both positive and negative implications," noted David Wagner, a portfolio manager and equity analyst at Aptus Capital Advisors. "While rate cuts may lead to reduced net interest income (NII), lower rates are expected to encourage spending. There is a conflict as the market tries to determine if growth can offset the compression of NII."

Major institutions like Bank of America, Citigroup, and Wells Fargo saw their stock prices dip between 1.3% and 2%. Morgan Stanley’s shares fell by 0.5%, whereas JPMorgan Chase’s stock remained mostly unchanged.

The executives’ remarks overshadowed the Federal Reserve’s recent decision to revise a controversial plan aimed at increasing capital requirements for large banks.

Goldman Sachs, in contrast, saw its shares recover slightly, with CEO David Solomon denying that the bank’s planned exit from a credit card partnership with General Motors was problematic during an interview.

On Tuesday, JPMorgan led the stock declines with a 5.2% drop after its President and Chief Operating Officer, Daniel Pinto, commented that projections for the bank’s 2025 NII were overly optimistic.

Wells Fargo and Citigroup also struggled, experiencing declines of 1.2% and 2.7%, respectively, while Morgan Stanley and Goldman Sachs fell by 1.6% and 4.4% on the same day. Although higher interest rates had previously boosted income from loans, easing monetary policy could yield smaller-than-expected gains moving forward.

Morgan Stanley has predicted a modest decrease in interest income for the third quarter, with President Dan Simkowitz observing that merger, acquisition, and initial public offering activities are expected to remain below typical levels for the remainder of the year. Pinto anticipates that JPMorgan’s trading revenue will stay flat or experience a 2% increase for the quarter, while Goldman Sachs’ CEO expects a potential 10% decrease, citing weak performance in August.

Additionally, Citigroup’s CFO Mark Mason indicated at a conference that market revenue is expected to decline by 4%. These insights from leaders of prominent U.S. banks have overshadowed the Fed’s adjusted plan to increase capital requirements for significant banks, now set at 9%, down from a previously proposed 19%.