JPMorgan executives have issued a warning that Wall Street's performance expectations for the bank next year are too optimistic, causing the stock price to plunge and reaching its largest drop in more than four years.

On Tuesday, September 10th, Eastern Time, $JPMorgan (JPM.US)$ the stock initially rose by more than 0.8%, but then fell further in early trading, hitting a daily low of $200.61, a drop of about 7.5% for the day, the largest intra-day decline since June 11, 2020, leading the Dow Jones Industrial Average component stocks, and ultimately closing down 5%. $Citigroup (C.US)$Please use your Futubull account to access the feature.$Barclays (BCS.US)$ Fell more than 2%. $UBS Group (UBS.US)$Please use your Futubull account to access the feature.$Wells Fargo & Co (WFC.US)$ Fell more than 1%.

On Tuesday, JPMorgan's stock price plummeted, which some media attributed to a warning from executives. At Barclays' annual Financial Services Conference that day, JPMorgan's CEO, Daniel Pinto, stated that analysts' expectations for the bank's net interest income (NII) and expenses for next year were too optimistic, considering the prospect of rate cuts by the Federal Reserve. The current NII forecast of $89.5 billion is 'not reasonable,' and he believed the actual figure would be even lower.

Some commentators pointed out that Pinto's remarks were surprising because just two months ago, when the bank announced its second-quarter financial report, JPMorgan's own NII guidance was around $91 billion, which was even lower than the street's estimate of $895 billion.

NII is a major profit driver for banks, calculated as the difference between the bank's deposit costs and the earnings from mortgage loans or investment securities. With the Federal Reserve raising interest rates last year, the NII of the four largest banks in the US soared to record levels. However, due to the expected multiple interest rate cuts by the Federal Reserve in the coming months, Pinto believes that the positive impact is diminishing.

In addition, it is argued that when interest rates are lowered, the profitability of new loans issued by banks and the purchase of new bonds will decrease. The decrease in interest rates will slow down the outflow of funds from bank customers' discretionary accounts and the inflow into higher-yielding instruments such as money market funds. From this perspective, it is helpful for banks, but it will also reduce the yield of new assets, making the situation more complex.

Pinto said at the Barclays industry conference on Tuesday: "As interest rates decline, the pressure to reprice deposits obviously decreases, but as we all know, we are very sensitive to assets."

Regarding next year's expense expectations, Pinto believes that the analyst's expected $94 billion is "a bit too optimistic" because inflation continues to exist and JPMorgan Chase is making new investments. "There are many factors that tell us that the data on expenses may be slightly higher than current expectations."

Pinto also said that JPMorgan Chase's investment banking expenses in the third quarter may increase by 15%, and revenue from capital markets may grow at zero or at most 2% year-on-year. Both of his growth forecasts are lower than analyst expectations.

Some commentators believe that Pinto's speech has made the outlook for large US banks even more pessimistic. The day before Pinto's speech, Goldman Sachs CEO Solomon said on Monday that the revenue of Goldman Sachs' trading business in the third quarter is expected to decline by 10%.

Before Pinto's speech, earlier on Tuesday, Michael Barr, Deputy Head of Financial Industry Supervision at the Federal Reserve, stated that the banking industry's new capital rules will require the largest banks in the United States to increase their capital by 9%, a much lower increase than the approximately 19% proposed in last year's initial version of the new rules. This was initially seen as a positive development for bank stocks, driving them higher on Tuesday.

In addition to Pinto's speech, it was also pointed out at the Barclays industry conference on Tuesday that American consumer auto loan giant $Ally Financial (ALLY.US)$ The statement also impacted the market. The company mentioned the pressure faced by consumers and its impact on loans, stating that delinquencies and net charge-offs for auto loans have grown beyond expectations. Ally Financial's stock price fell nearly 20% intra-day on Tuesday, marking the largest decline since March 2020.

Editor/Somer