On the eve of the Fed's interest rate cut, Wall Street banks lowered profit expectations, car loan institutions warned of deteriorating credit, and the crediting prospects in the USA became even more pessimistic.

Overnight, large US banks released consecutive bearish signals: $JPMorgan (JPM.US)$ Lowered profit expectations, closing down 6.47% on the day, marking the worst single-day performance since April 12.

Bank of America stated that its investment banking performance will be below expectations, while Goldman Sachs expects a 10% year-on-year decline in trading department performance, with the stock price falling over 3% on the day.

In addition, Ally Financial, one of the largest consumer auto loan institutions in the United States, stated at an industry conference that the delinquency rate for auto loans increased by 20 basis points in July and August, which is 20 basis points higher than the company's expectations. Net charge-offs (NCO) also exceeded expectations by about 10 basis points, confirming the deterioration of the credit environment.

After the news was announced, the stock price plummeted by 18%, the largest single-day drop since March 2020. $Ally Financial (ALLY.US)$ Impacted by the various factors mentioned above, the Dow Jones Industrial Average fell by about 1.9%, and safe-haven sentiment pushed the index down by over 400 points at one point.

As the interest rate cut progresses and the credit environment worsens, bank profitability prospects decline.$KBW Nasdaq Bank Index (.BKX.US)$The stock price once fell by over 1.9%, with safe-haven sentiment pushing the Dow Jones Industrial Average down by over 400 points.

With the gradual lowering of interest rates and the worsening credit environment, the prospects for bank profits are declining.

JPMorgan Chase President Daniel Pinto told analysts that Wall Street's forecasts for next year's expenses and net interest income (NII) are too optimistic.

Last year, with the continuous interest rate hikes by the Federal Reserve, NII of the four major banks in the United States soared to a record level. However, with the expectation of a possible interest rate cut by the Federal Reserve in the coming months, NII income is decreasing.

Ally Financial also stated that credit challenges are intensifying due to high prices and a weak job market. CFO Russ Hutchinson said,

"The borrowers we are facing have been struggling to make ends meet, and now they are struggling even more due to the deteriorating job market."

"The number of borrowers in the late delinquency stage and in distress is increasing, which is causing us concern."

KBW analyst Sanjay Sakhrani commented,

"Clearly, this guidance is disappointing and begs the question: Is this an ALlY-specific issue or a canary in the coal mine?"

"We still believe that with the decline in interest rates, the stock still has bright growth prospects in the long term, but it must also be acknowledged that this adjustment is not optimistic."

A piece of good news for the banking industry is that the Vice Chairman of the Federal Reserve, Powell, has proposed a relaxation of the capital increase proposal, reducing the originally proposed capital increase from 19% to half.

This means that the capital increase for the eight major banks, including JPMorgan, Bank of America, and Citigroup, only needs to be raised to around 9%, which to some extent alleviates their capital expenditure pressure.

Editor/Rocky