Daniel Pinto, president and chief operating officer of JPMorgan Chase, speaks during the Semafor 2024 World Economy Summit in Washington, DC, on April 18, 2024.
Saul Loeb | AFP | Getty Images
JPMorgan Chase Shares fell 7% on Tuesday after the bank’s president told analysts that expectations for net interest income and expenses in 2025 were too optimistic.
While the bank expects to be in the ballpark of its 2024 target for NII of about $91.5 billion, the current estimate for next year of about $90 billion is “not very reasonable” because the Federal Reserve will cut interest rates, it says JPMorgan President Daniel Pinto said on a financial conference.
“I think that number will be lower,” Pinto said. He did not want to give a specific figure.
The stock move was the New York-based bank’s worst decline since June 2020, according to FactSet.
JPMorgan, the largest U.S. bank by assets, has been a winner among lenders in recent years, benefiting from better-than-expected NII growth as the bank collected more deposits and made more loans than expected. But skittish investors are now concerned about the prospects for a more favorable bank stock, alongside broader concerns about slowing US economic growth.
NII, one of the main ways banks make money, is the difference in the cost of a bank’s deposits and what it earns by lending money or investing in securities. If interest rates fall, new loans from the bank and new bonds it buys will yield less.
Falling interest rates may help banks in that customers will slow the rotation from checking accounts to higher-yielding instruments such as CDs or money market funds. But they also mean that new assets yield lower returns, complicating the picture.
“Obviously, as interest rates come down, you have less pressure on deposit repricing,” Pinto said. “But as you know, we are quite asset sensitive.”
When it comes to costs, analysts’ estimate for next year of roughly $94 billion is “also a bit too optimistic” because of continued inflation and new investments the company is making, Pinto said.
“There are a number of components that tell us that the number of expenditures will likely be slightly higher than what is expected at this time,” Pinto said.
When it comes to trading, JPMorgan expects third-quarter revenue to be flat and up about 2% from a year ago, while investment banking expenses are on track for a 15% increase.
The trade slowdown follows Goldman Sachswhich said on Monday that trading revenue for the quarter was on track for a 10% decline due to a tough year-on-year comparison and tough trading conditions in August.