JPMorgan, BofA Cut Interest-Income Outlook Amid Jump in Trading

(Bloomberg) -- The two biggest U.S. banks trimmed expectations for net interest income as low rates and tepid loan growth weigh on revenue.

JPMorgan Chase & Co.’s NII for 2020 will probably be $55 billion, down from an previous forecast of $56 billion, Chief Financial Officer Jennifer Piepszak said at a virtual investor conference Tuesday. Bank of America Corp.’s third-quarter figure will drop by about $600 million to $700 million, Chief Executive Officer Brian Moynihan said at the same event.

Better trading results will help the two companies weather the hit. JPMorgan’s third-quarter revenue from the business will probably jump 20% from last year, Piepszak said. And Moynihan said he expects trading revenue to rise 5% to 10% from a year earlier.

“While things do look a little bit better than we thought they would, we’re still dealing with an enormous amount of uncertainty looking ahead,” Piepszak said. Consumers are saving more and paying down credit-card loans and mortgages during the pandemic, cutting into loan growth, she said.

The Federal Reserve has left its benchmark interest rate at zero to help stimulate economic growth, but low borrowing costs pinch banks’ revenue from lending. Many companies have been been reluctant to take out new loans until fallout from the coronavirus pandemic becomes clearer. And bond markets are booming, offering an attractive alternative to loans.

Citi, Wells Fargo

Citigroup Inc. said yesterday that a drop in interest income would outweigh a trading revenue increase this quarter, while Wells Fargo & Co. also cut its full-year forecast for NII, which is revenue from customer loan payments minus what the bank pays depositors.

Moynihan struck a more optimistic note, citing a decline in payment deferrals and a nascent recovery in spending.

“It’s going to take a few more quarters to see the economy recover and to start to see that come through in any steady, meaningful way, but we feel pretty good that we’ve hit the bottom,” he said.

JPMorgan shares fell 1.6% to $100.81 at 1:10 p.m. in New York, while Bank of America shares slid 1.1% to $25.48. They’re both down 28% this year.

JPMorgan will probably keep its loan-loss reserve constant this quarter, Piepszak said. If Bank of America adds to its reserve, it will be “very modest,” Moynihan said. That differed from Citigroup, which plans to increase its set-aside.

Other takeaways from bank executives’ comments:

• JPMorgan
  • Raised its expense outlook to $66 billion for 2020, from $65 billion.
  • Investment-banking revenue will probably rise in the third quarter by a “mid-single-digits” percentage, Piepszak said.
  • Firm would consider buybacks in the fourth quarter if regulators allow it.
• Bank of America
  • Investment-banking fees will probably rise 3% to 5% in the third quarter from a year earlier, Moynihan said.
  • Of $13 billion in remaining consumer-deferral balances, $11 billion are home loans and 89% are scheduled to expire by the end of October, according to a presentation.

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