JPMorgan Joins Rivals in Cutting Weeks-Old Targets

(Bloomberg) -- The pain from the Fed’s rate cuts is a little worse than the biggest U.S. banks expected.

JPMorgan Chase & Co. reduced the annual net interest income target it set two months ago, joining Citigroup Inc. and Wells Fargo & Co. in lowering the bar this week. Longer-term rates have continued to fall as investors expect the Federal Reserve to continue the cuts it began in July.

JPMorgan’s net interest income will likely be around $57 billion this year, Chief Executive Officer Jamie Dimon said Tuesday at an investor conference in New York. That’s down from the $57.5 billion it targeted in July, which was a $500 million cut from what it expected in April.

Banks’ traditional lending businesses have profited from the Fed’s march upward that began in late 2015, as they passed on the higher rates to borrowers while keeping deposit rates low. Investors have fretted about how banks will handle the turnabout, causing their stocks to trail the broader market despite record earnings and buybacks.

The four commercial banking giants all missed analysts’ estimates for net interest income in the second quarter, and most set a lower bar for the latter half of 2019.

Wells Fargo Chief Financial Officer John Shrewsberry said Monday that NII will likely drop 6% from last year, the second time this year it’s cut that outlook. Citigroup CFO Mark Mason said his bank will probably see a 3% to 4% increase in NII this year, down from earlier guidance of 4%.

Regional banks face challenges from the Fed’s reversal of rate policy as well. Also at the Barclays conference, BB&T Corp. said it foresees a 4- to 8-basis-point drop in net interest margin in the fourth quarter. Regions Financial Corp. said next quarter’s net interest margin will come in below its second-quarter number, and Comerica Inc. warned that the metric would take a hit under the new easing cycle.

Not all lenders had bad news on lending income. State Street Corp. surged as much as 7.5%, the most since July, after saying net interest income probably won’t fall in the third quarter even as lower interest rates pressure revenue.

To contact the reporter on this story: Michelle F. Davis in New York at mdavis194@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Josh Friedman, Dan Reichl

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