Source: Wall Street See

USA's largest bank, JPMorgan, will release its third-quarter financial report before the opening of the US stock market on this Friday. As the Federal Reserve cuts interest rates by 50 basis points to start an easing cycle, the US banking industry is far from emerging from the crisis.

According to the latest data from LSEG and StreetAccount, Wall Street's expectations for JPMorgan's performance in the third quarter are as follows:

Earnings per share: $4.01, lower than the $4.33 in the same period last year;

Revenue: $41.63 billion, higher than the $39.87 billion in the same period last year;

Net interest income: $22.73 billion, lower than the $22.9 billion in the same period last year;

Trading income: fixed income revenue is $4.38 billion, stock revenue is $2.41 billion.

In recent years, JPMorgan has performed well in a rising interest rate environment. Since the Federal Reserve began raising rates in 2022, its net income has reached record levels.

With the Federal Reserve cutting interest rates, there are concerns in the market about how JPMorgan will respond to this change. Like other major banks, as the yield on interest-earning assets such as loans decreases, JPMorgan's profit margin may be squeezed. Last month, JPMorgan lowered its expectations for net interest income and expenditures in 2025.

Morgan Stanley analysts downgraded their rating of JPMorgan from 'shareholding' to 'neutral' last month.

This year, JPMorgan's stock has risen by 25%, exceeding the 20% increase in the KBW Nasdaq Bank Index.

The US banking industry has not yet emerged from the crisis.

In September, the Federal Reserve made a significant 50 basis point rate cut. Generally, rate cuts are good news for banks, especially when the rate cut is not a precursor to an economic downturn.

However, this process may not be smooth sailing: ongoing concerns about inflation could mean that the Federal Reserve will not cut rates as significantly as expected. Chris Marinac, the research director at Janney Montgomery Scott, expressed his concerns in a media interview:

"The market seems to be fluctuating due to accelerated inflation again, raising concerns about whether the Federal Reserve will pause rate cuts. This also leaves me feeling confused."

However, the market still expects all banks in the USA to ultimately benefit from the Federal Reserve's loose policy period—although the timing and extent of this change are still unknown, depending on factors such as the interest rate environment, bank assets and liabilities' sensitivity to interest rate cuts, and other influencing factors.

Ideally, banks will benefit during periods when the cost of financing decreases faster than the asset yield generating income, thereby increasing their net interest margin.

However, for certain banks, their assets may actually reprice faster than deposits in the early stages of the loose policy period, meaning their profit margins may be impacted in the coming quarters.

On October 1st, Goldman Sachs bank analyst Richard Ramsden stated in a report that due to weak loan growth and lagging deposit repricing, the net interest income of large banks is expected to average a 4% decrease in the third quarter. The report also indicates that the deposit costs of large banks are expected to rise in the fourth quarter.

Last month, JPMorgan's CEO Daniel Pinto warned investors that analysts' expectations for JPMorgan's 2025 net interest income were too optimistic. He stated:

"Obviously, as interest rates decline, the pressure from deposit repricing will decrease, but as you know, our assets are very sensitive."

Pinto's remarks unsettled investors, leading to a sharp drop in JPMorgan's stock price. Analysts lowered JPMorgan's 2025 net interest income from $91.5 billion to $89 billion.

However, the rate cut's negative impact on JPMorgan also has some offsetting factors. Analysts expect that lower rates will benefit the investment banking business of large banks, as there is often more trading volume when rates fall.

Editor / jayden