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On the eve of the Fed rate cut, Wall Street's major banks have lowered profit expectations, auto loan institutions have warned of credit deterioration, and the credit outlook in the United States is becoming increasingly pessimistic.

Overnight, major U.S. banks have successively released pessimistic signals: JPMorgan Chase lowered profit expectations, closing down 6.47% on the same 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 trading department performance to decline by 10% year-on-year, with the stock price falling over 3% on the same day.

In addition, Ally Financial, one of the largest consumer auto loan institutions in the United States, also stated at an industry conference that the delinquency rate for auto loans surged 20 basis points higher than expected in July and August, and net charge-offs (NCO) exceeded expectations by about 10 basis points, confirming a deteriorating credit environment.

After the news was announced, Ally Financial's stock price plummeted by 18% at one point, marking the largest single-day decline since March 2020.

Affected by the above factors, the KBW Bank Index fell by about 1.9%, and risk aversion pushed the Dow down by over 400 points at one point.

Gradual rate cuts, deteriorating credit environment, and declining bank profit prospects

JPMorgan Chase CEO Daniel Pinto told analysts that Wall Street's forecasts for next year's expenses and Net Interest Income (NII) are overly optimistic.

Last year, as the Fed continued to raise interest rates, NII for the four largest U.S. banks soared to record levels. However, with expectations of future Fed rate cuts in the coming months, NII income is decreasing.

Ally Financial also stated that credit challenges are intensifying due to high prices and weak employment conditions. CFO Russ Hutchinson said:

"Borrowers we face have been struggling to make ends meet for living expenses and are now struggling with deteriorating employment conditions."

"The number of borrowers in late-stage delinquency and facing distress continues to increase, which is concerning."

KBW analyst Sanjay Sakhrani commented:

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

"We still believe that the stock has attractive growth opportunities in the long term as rates decline, but we must also acknowledge that this adjustment is not optimistic."

One positive news for the banking industry is that Fed Vice Chairman Quarles proposed a relaxation of the capital increase proposal, halving the originally proposed capital increase from 19% This means that the capital requirements for the eight major banks, including JPMorgan Chase, Bank of America, and Citigroup, only need to be increased by around 9%, to some extent alleviating their capital expenditure pressure