Daniel Pinto, Chairman and Chief Operating Officer of JPMorgan Chase, speaks during the Semaphore Global Economic Summit 2024 in Washington, D.C., on April 18, 2024.
Saul Loeb | AFP | Getty Images
JPMorgan Chase Bank of America shares fell 7% Tuesday after the bank's chief executive told analysts that the outlook for net interest income and expenses in 2025 was too optimistic.
While the bank expects to be in the “ballpark” of its 2024 net interest income target 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, JPMorgan President Daniel Pinto said at a financial conference.
“I think it will be less,” Pinto said, but declined to give a specific number.
The stock's move was the New York-based bank's worst decline since June 2020, according to FactSet.
JPMorgan Chase, the largest U.S. bank by assets, has been among the winners in recent years, benefiting from better-than-expected growth in net interest income as the bank collected more deposits and made more loans than expected. But hesitant investors are now worried about the outlook for a leading banking stock, along with broader concerns about slowing U.S. economic growth.
Net interest income, one of the main ways banks make money, is the difference between the cost of deposits with the bank and what it earns from lending money or investing it in securities. When interest rates fall, the new loans the bank makes and the new bonds it buys will yield lower returns.
Lower interest rates may help banks in the sense that customers will slow down their shift from checking accounts to higher-yielding instruments such as certificates of deposit or money market funds. But it will also make new assets less profitable, further complicating the picture.
“Obviously with lower interest rates, there is less pressure on deposit repricing. But as you know, we are very sensitive to assets,” Pinto said.
When it comes to spending, analysts' estimate for next year of $94 billion is “very optimistic” due to ongoing inflation and new investments the company is making, Pinto said.
“There are a number of elements that tell us that the spending figure may be a little bit higher than currently expected,” Pinto said.
When it comes to trading, JPMorgan said it expects third-quarter revenue to remain flat or rise about 2% from a year ago, while investment banking fees are on track to rise 15%.
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