The Federal Reserve has not yet started cutting interest rates, and financial stocks have already started to decline.

On Tuesday local time, US stocks' financial stocks collectively plummeted, with JPMorgan leading the decline in the Dow Jones Index components.

JPMorgan closed down 5.19%, falling as much as 7% at one point during the trading session, marking its largest decline since June 2020.

The KBW bank index, which includes 24 banks, fell by about 1.9%, Goldman Sachs fell by 4.39%, credit card loan institution Capital One Financial fell by 3.23%, and Citigroup fell by 2.67%.

JPMorgan has recently warned that investors are too optimistic about its earnings next year.

At the same time, as rate cuts are about to begin, concerns about the health of banks and high loan profitability in the 'golden age' are becoming a focus of market attention.

Affected by the interest rate cut.

For financial stocks, the trend of interest rates is very crucial.

Currently, the Fed is about to start a rate-cutting cycle. The market generally expects the Fed to cut interest rates by at least 25 basis points at this month's meeting, with the federal funds rate dropping from 5.25%-5.5% to 5%-5.25%.

The latest, the president of JPMorgan, Daniel Pinto, stated that analysts' forecasts for next year's spending and net interest income (NII, the difference between bank asset income and debt payments) are too optimistic.

Last year, due to the impact of rising interest rates, the NII of the four largest banks in the USA soared to a record high.

But in recent months, the management of JPMorgan, including CEO Jamie Dimon, has been warning shareholders that the good times will not last forever, and the market's profit expectations for the company are too high.

Pinto said that currently, due to the expected rate cuts by the Fed in the coming months, NII is decreasing, and analysts' current estimates for NII are "unreasonable".

He pointed out, "Analysts generally believe that by 2025, NII will decrease by $1.5 billion from $91.5 billion to $90 billion. This is not very reasonable because interest rate expectations have fallen by 250 basis points. So, I think this number will be even lower."

Pinto said, "Obviously, with the decline in interest rates, the pressure to reprice deposits will decrease. But as you know, we are very sensitive to assets."

He expects JPMorgan's investment banking revenue to increase by about 15% in the third quarter, while trading revenue will remain flat or only increase by about 2%.

"Downward" management expectations

It is worth noting that JPMorgan is not the only Wall Street investment bank to issue warnings.

On Monday, Goldman Sachs CEO David Solomon warned investors that trading revenue would decline by about 10% in the third quarter.

Solomon also said that due to Goldman Sachs' continued withdrawal from consumer banking, its third quarter earnings would also be affected by a loss of $0.4 billion and attributed the decline in revenue to the decrease in fixed income, currency, and commodity trading revenue.

In addition, Citigroup's CFO also warned that trading revenue in the third quarter would decrease by about 4%.

The capital requirement increases by half.

At the same time, the U.S. regulatory authorities are modifying the capital rules proposal for banks.

Michael Barr, Vice Chairman of the Federal Reserve Board of Governors, said on Tuesday that the proposed revision will reduce the regulatory agency's planned 19% capital increase for the eight largest banks in the United States by about half.

Large banks including Citigroup, Bank of America, and JPMorgan Chase will face a 9% increase in capital requirements to address financial shocks.

Barr stated that other large banks constrained by this rule will face an increase in capital requirements of about 3%-4%.

In response, Democratic Senator Elizabeth Warren criticized these measures for giving banks too many concessions.

The revised bank capital standards increase the risk of future financial crises and place the burden of bailouts on taxpayers. After years of unnecessary delay, the Federal Reserve not only failed to strengthen the security of the financial system, but also succumbed to lobbying by top executives of major banks.