US banks extend fall as investors assess executives' sobering forecasts

By Pritam Biswas

(Reuters) -U.S. bank stocks fell in early trading on Wednesday, extending declines sparked by warnings of a slower-than-anticipated recovery in investment banking and an expected hit to interest income from looming rate cuts.

Bank executives this week softened investor hopes ahead of a widely expected interest rate cut by the Federal Reserve, as well as persistent worries over the economy.

"Investors are trying to reconcile a few moving parts that are both bullish and bearish," said David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors.

"Rate cuts are expected to compress NII much like JPM's commentary…but lower rates are also supposed to help boost spending. Thus, a tug of war has begun to see if growth can insulate the NII compression."

JPMorgan fell 1.5%, Morgan Stanley dipped 2.2%, Goldman Sachs dropped 1.7% and Citigroup fell 2.7%, while Wells Fargo dropped 2.5% in early trade.

JPMorgan led the declines on Tuesday with a 5.2% fall after Chief Operating Officer Daniel Pinto said forecasts for 2025 net interest income (NII), or the difference between what the bank earns on loans and pays out on deposits, were overly optimistic.

Rivals Wells Fargo and Citigroup had declined 1.2% and 2.7% respectively, while investment banks Morgan Stanley and Goldman Sachs each fell 1.6% and 4.4%.

Higher rates had boosted banks' loan income, but easing monetary policy would lead to smaller-than-expected increases.

Morgan Stanley has also forecast modestly lower interest income in the third quarter, with President Dan Simkowitz noting that mergers, acquisitions and initial public offering activities will remain below trends for the rest of the year.

Pinto expects trading revenue to be flat or rise 2% in the quarter, while Goldman Sachs CEO David Solomon anticipates a probable 10% dip due to sluggish conditions in August.

Citigroup's CFO Mark Mason told investors at a conference in New York on Monday that markets revenue is likely to drop 4%.

Meanwhile, Bank of America, which outperformed peers on Tuesday with a marginal drop, fell 3% after Berkshire Hathaway disclosed it had sold more shares in the second-largest U.S. lender.

The comments from executives of top U.S. banks overshadowed the Fed's revised plan to raise big banks' capital by 9%, down from 19%.

(Reporting by Pritam Biswas in Bengaluru; Editing by Vijay Kishore and Sriraj Kalluvila)