By Pritam Biswas
(Reuters) – 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 income from looming rate cuts.
JPMorgan Chief Operating Officer Daniel Pinto on Tuesday said forecasts for 2025 net interest income (NII), or the difference between what the bank earns on loans and pays out on deposits, were overly optimistic.
JPMorgan fell 0.4%, Morgan Stanley dipped 1.2% and Citigroup fell 0.5%, while Wells Fargo dropped 0.4% in premarket trading.
“Bank stocks are getting hammered which seems counter to what I would have expected given the reg capital news out today. Or more likely it has to do with the bank conference going on & execs warning of overly optimistic projections for earnings/NII,” JPMorgan analyst Mark Whitworth said in a note to clients.
The Federal Reserve is widely expected to lower its key policy by at least 25 basis points in its meeting scheduled next week.
The higher rates boosted banks’ loan income, but easing monetary policy would lead to smaller-than-expected increases.
Morgan Stanley on Tuesday also forecast modestly lower interest income in the third quarter, with President Dan Simkowitz noting that mergers, acquisitions and initial public offering activities will remain below trends for the rest of the year.
Pinto expects trading revenue to be flat or rise 2% in the quarter, while Goldman Sachs CEO David Solomon anticipates a probable 10% dip due to sluggish conditions in August.
Citigroup’s CFO Mark Mason told investors at a conference in New York on Monday that markets revenue is likely to drop 4%.
Meanwhile, Bank of America dropped 0.6% before the bell after Berkshire Hathaway disclosed it had sold shares in the second-largest lender again.
The gloom overshadowed the Federal Reserve’s revised plan to raise big banks’ capital by 9%, down from 19%, on Tuesday.
(Reporting by Pritam Biswas in Bengaluru; Editing by Vijay Kishore)