JPMorgan leads banks stocks lower as Pinto tempers earnings expectations

JPMorgan Chase & Co. shares fell the most in more than four years, leading bank stocks lower, after President Daniel Pinto said analysts are being too optimistic in projecting next year’s expenses and net interest income.

The current NII estimate of $89.5 billion is “not very reasonable” given interest-rate expectations, Pinto said at an industry conference Tuesday. The figure “will be lower,” he said, sending the stock down as much as 7.5%. That was the biggest intraday tumble since June 2020.

The remarks added to a more pessimistic outlook for the biggest US banks after David Solomon, Goldman Sachs Group Inc.’s chief executive officer, said Monday that trading revenue at his firm is on track to drop 10% in the third quarter. 

Forecasts were also grim for smaller firms, as Ally Financial Inc. said auto delinquencies and net charge-offs were up more than expected. That sent Ally’s stock to its biggest plunge since March 2020, dragging consumer lenders Capital One Financial Corp. and Synchrony Financial down with it.

The 24-firm KBW Bank Index fell 3.5%, even as the Federal Reserve confirmed that it will cut higher proposed capital requirements for the biggest firms in half after industry blowback. The share declines pared a winning streak for banks this year, though the index is still up 12% since Dec. 31. JPMorgan was the day’s second-biggest loser in the index after Capital One, which will make a presentation at the conference later Tuesday.

Net interest income — the difference between what banks earn on their assets and what they pay on debts — surged to a record at the four largest lenders last year on the back of higher interest rates. But with expectations for several Fed interest-rate cuts in coming months, Pinto said those tailwinds are diminishing.

JPMorgan reported NII that missed analysts’ estimates for the second quarter as well as higher-than-expected costs. Pinto said Tuesday that expectations for 2025 expenses were also too optimistic. Adding to the pressure, he said third-quarter investment-banking fees could rise 15% and markets revenue may increase just 2% — both below what analysts had been anticipating.

With so many executives casting a shadow over earnings expectations, analysts focused on just how far they should lower their expectations. 

Ally’s discussion was “disappointing and begs the question if this is Ally-specific or a canary in the coal mine,” Keefe, Bruyette & Woods analysts led by Sanjay Sakhrani said in a note. “Management noted that persistently high inflation and some worsening of the labor market were causing the weakness in credit.”

Morgan Stanley Co-President Dan Simkowitz joined his counterparts in striking a note of caution at the conference, which was hosted by Barclays Plc. Simkowitz warned that revenue from the merger advisory and IPO businesses will remain below historical averages even as deal conversations with company executives pick up. He also said net interest income in the wealth-management business will decline again this quarter.