JPMorgan Chase shares fell 7% 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 the 2024 target for NII of about $91.5 billion, the current estimate for 2025 of about $90 billion “is not very reasonable” because the Federal Reserve is cutting interest rates, JPMorgan president Daniel Pinto said at financial conference.
“I think that that number will be lower,” Pinto said. He declined to give a specific figure.
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 it in securities. When interest rates decline, new loans made by the bank and new bonds it purchases will yield less.
Falling rates can help banks in the sense that customers will slow the rotation out of cash and into higher yielding instruments like CDs or money market funds. But they also make new assets lower yielding.
“Clearly, as rates go lower, you have less pressure on repricing of deposits,” Pinto said. “But as you know, we are quite asset sensitive.”
The move was the New York-based bank’s worst drop since June 2020, according to FactSet.
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