11. October
The Fed’s interest rate cut threatens to have a serious impact on the earnings of leading US banks this year. Because while they earn less on loans, they continue to have to pay higher rates on deposits. Even executives at JP Morgan Chase and Goldman Sachs are now warning against too much optimism.
By Alex Wehnert, New York
Daniel Pinto is forced to issue urgent warnings. At an analyst conference in mid-September, the president and chief operating officer of JP Morgan Chase stressed that consensus estimates for the largest U.S. bank’s net interest income next year were “not very reasonable.” At this point in time, forecasts were being passed around on Wall Street according to which the key figure would fall by $1.5 billion to $90 billion in 2025 compared to 2024. Pinto believes: The market strategists are painting the situation too rosily – his gloomy tones caused JP Morgan shares to collapse by more than 5% within one trading day.
Weakness in the credit business ahead
According to industry experts, the fact that the COO is accepting the price collapse shows how great the leading US financial institution is about becoming a victim of its own success. Bank representatives repeatedly tried to dampen expectations during the most recent quarterly publications. Over the past year, analysts have said more than thirty times that JP Morgan has “overearned” in the lending and interest business, transcripts show. When the figures for the third quarter of 2024 are presented on October 11th, investors are now paying attention to new signs of weakness in the segment.
JP Morgan COO Daniel Pinto warns investors against exuberance. Photo: picture alliance / NurPhoto | Vernon Yuen.
In the second quarter, the financial institution’s net interest income climbed 4% year-on-year to $22.9 billion. However, the net interest margin collapsed to 2.62% – this was the second decline in a row. While the major US banks initially benefited from being able to charge higher rates on loans as a result of the long-standing restrictive monetary policy, they are now also caught up in deposit competition. This means their interest expenses are continually rising – while their gross income from lending and their bond positions is now falling due to the Fed’s easing.
Card market catches up with financial institutions
In addition, US banks are being hit by increasing late payments and defaults in the card business. At Wells Fargo, which is traditionally heavily oriented towards retail banking and will also open its books on October 11, net profit fell by around 1%. Net interest income has already fallen by 9% to $11.9 billion as a result of higher financing costs – the bank recently scaled back its forecast for the full year.
Goldman CEO David Solomon prepares market participants for a slowdown in trading. Photo: picture alliance / ASSOCIATED PRESS | Alex Brandon.
While consumer banking is coming under increasing pressure, the capital market business still needs time to get going despite the Fed’s easing. Goldman Sachs CEO David Solomon recently warned at an industry conference in New York that trading revenues were trending down 10% in the third quarter amid macroeconomic hurdles. At the same time, his bank has to cope with a $400 million hit to its pre-tax profits, which is mainly due to the planned sale of a credit card cooperation with General Motors – Solomon thus joins the gloomy reputation of his JP Morgan colleague Pinto.
