By Nupur Anand and Pritam Biswas
NEW YORK (Reuters) – Shares of JPMorgan Chase fell more than 5% after the chief of the largest U.S. bank tempered the outlook for interest income as interest rates are expected to fall.
According to President and Chief Operating Officer Daniel Pinto, forecasts for net interest income (NII), or the difference between what the bank earns on loans and what it pays out on deposits, were overly optimistic.
The Federal Reserve is widely expected to cut its key policy rate by at least 25 basis points at its Sept. 17-18 meeting, setting off a cycle of monetary easing that will lead to smaller-than-expected growth in banks’ interest income.
“NII expectations are a little bit too high,” Pinto told investors at a conference in New York, without giving a revised estimate. “Next year is going to be a lot more challenging.”
Pinto also said that spending could increase slightly next year.
JPMorgan forecast in May that net interest payments would rise to $91 billion this year as interest rates remained high, excluding the markets division.
“Management’s comments about too much optimism about the NII for 2025 have shocked the market,” said Chris Marinac, director of research at financial advisor Janney Montgomery Scott.
“There are growing concerns about the economy and the political climate,” he said. “Those concerns are likely to lead to more volatility in the stock market over the next two months.”
Shares of JPMorgan fell as much as 7.5%, the biggest daily drop since June 2020, before closing down 5.2%.
JPMorgan’s comments indicate there is a risk of some pressure on earnings, which will increase in the coming months, said Octavio Marenzi, CEO of consultancy Opimas.
“But the hit that JPMorgan’s stock has taken is outsized. Other U.S. banks are in the same water and will experience a similar downturn.”
JPMorgan’s total investment banking expenses could rise 15% in the third quarter, Pinto said.
The bank’s profit rose to a record in the second quarter, boosted by a 46% jump in investment banking revenue. Rivals Citigroup and Wells Fargo also reported strong investment banking profits.
Revenue at JPMorgan’s recently merged commercial and investment banking division also rose to a record $35.5 billion in the first half of the year.
Trading revenue is expected to remain flat or rise 2% in the third quarter, while mergers and acquisitions volumes are likely to remain flat, Pinto said. That compares with a 10% increase in trading revenue in the second quarter.
The forecast echoes Goldman Sachs’ more subdued forecast that trading volume would likely fall 10% in the third quarter. Citigroup estimated Tuesday that market volume would likely fall about 4%.
Bank stocks fell after the Fed announced a sweeping overhaul Tuesday to ease two key capital rules for banks. The overhaul follows intense industry lobbying against the U.S. central bank’s proposal to set aside more capital for several business units.
The draft rules required the largest U.S. lenders to raise capital by about 19%. A major revision lowered the level to 9%, but analysts said that fell short of market expectations.
“I thought these changes would be positive for the bank, but the market was clearly looking for more,” said Stephen Biggar, banking analyst at Argus Research.
“Banks have fallen on all fronts, but the bigger the bank, the bigger the blow. That could also have consequences for JPMorgan shares.”
(Reporting by Nupur Anand in New York and Pritam Biswas in Bengaluru; Editing by Lananh Nguyen and Richard Chang)
