The worst day in four years! JPMorgan Chase plunged more than 7% intraday, with the CEO warning that Wall Street's expectations are too optimistic

JPMorgan Chase executives issued a warning to Wall Street that the bank's performance expectations for next year are too optimistic, causing the stock price to plummet by the largest margin in over four years.

On Tuesday, September 10th, JPMorgan Chase initially rose by over 0.8%, but turned negative in early trading, leading to a continuous expansion of the decline. At midday, the stock hit a new daily low of $200.61, down about 7.5% intraday, marking the largest intraday drop since June 11, 2020. It led the Dow Jones Industrial Average components in decline and is expected to fall back to the closing low since August 7th after rebounding on Monday. Bank stocks generally fell during the day, with Goldman Sachs down over 4%, Citigroup down over 3%, and Morgan Stanley down nearly 2%.

The sharp drop in JPMorgan Chase's stock price on Tuesday was attributed by some media to a warning from senior executives. At the annual financial services conference hosted by Barclays that day, JPMorgan Chase's CEO Daniel Pinto stated that analysts' expectations for the bank's net interest income (NII) and expenses for next year are too optimistic. Considering the prospect of rate cuts by the Federal Reserve, the current forecast of $89.5 billion in NII is "not quite reasonable," and "I think the (actual) data will be lower."

Some commentators pointed out that Pinto's remarks were surprising because two months ago, when the bank announced its second-quarter earnings, JPMorgan Chase's own NII guidance was around $91 billion, higher than the Wall Street expectation of $89.5 billion.

NII is a major source of profit for banks, equal to the difference between the cost of bank deposits and the income earned from mortgages or investment securities. Boosted by the Federal Reserve's rate hikes last year, NII for the four largest U.S. banks soared to record levels. However, with multiple rate cuts expected by the Federal Reserve in the coming months, Pinto believes that the positive impact of these rate hikes is diminishing.

Furthermore, when interest rates fall, the income from new loans issued by banks and the purchase of new bonds will decrease. Rate cuts will slow down the outflow of funds from bank customers' deposit accounts and the flow into higher-yield tools such as the money market. While this is beneficial for banks from one perspective, it will also reduce the income from new assets, making the situation more complex.

Pinto stated at the Barclays industry conference on Tuesday, "As rates fall, the pressure to reprice deposits obviously decreases, but as everyone knows, we are very sensitive to assets."

Regarding next year's expense expectations, Pinto believes that analysts' estimate of around $94 billion is "a bit too optimistic" due to persistent inflation and new investments being made by JPMorgan Chase. "There are many factors telling us that the expense data may be slightly higher than the current expectations."

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

Some commentators believe that Pinto's remarks have made the outlook for major U.S. banks even more pessimistic. The day before Pinto's speech, Goldman Sachs CEO Solomon stated on Monday that the bank's trading revenue in the third quarter is expected to decline by 10% Before Pinto's speech came out, earlier this Tuesday, Michael Barr, Vice Chairman of Financial Industry Regulation at the Federal Reserve, stated that the new banking capital regulations will require some of the largest banks in the United States to increase their capital by 9%. This increase is much lower than the approximately 19% proposed in last year's initial version of the regulations, which was initially seen as a positive for bank stocks, driving them higher on Tuesday.

In addition to Pinto's speech, comments pointed out that at the Barclays industry conference on Tuesday, Ally Financial, a major player in U.S. consumer auto loans, also made statements that impacted the market. The company mentioned the pressures faced by consumers and their impact on loans, stating that delinquencies and net charge-offs for auto loans have both grown more than expected. Ally Financial's stock price fell nearly 20% at one point during Tuesday's trading, marking its largest decline since March 2020