Bank Stocks Sink as CEOs Highlight Financial Woes Despite Softened Fed Regulations

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Bank stocks faced a sharp decline on Tuesday, with JPMorgan Chase, Goldman Sachs, and Ally Financial leading the downturn, as industry executives issued bleak updates overshadowing a favorable regulatory development.

JPMorgan Chase, the largest U.S. bank, was notably affected, dropping 5.2% after its president, Daniel Pinto, indicated that the bank’s full-year net interest income (NII) forecast might be overly optimistic. Pinto suggested that projected figures of $91.5 billion for 2024 were “not very reasonable” given expected interest rate cuts by the Federal Reserve. The stock even fell as much as 7.5% during the day.

Goldman Sachs also experienced a 4.4% decline. CEO David Solomon warned of a likely 10% drop in trading revenue for the third quarter, attributing the downturn to a more challenging macroeconomic environment, particularly in August.

Ally Financial saw a dramatic 18% plunge following its CFO Russell Hutchinson’s announcement of rising auto loan delinquencies and net charge-offs that exceeded expectations. Hutchinson reported a 20 basis point increase in auto loan delinquencies and a 10 basis point rise in net charge-offs for July and August.

The sector’s poor performance was exacerbated by concerns that elevated interest rates are negatively impacting consumer finances and banks’ balance sheets more than anticipated. Overall, the financial sector declined by 1% on Tuesday.

This adverse news came despite a significant regulatory concession from the Federal Reserve. The Fed’s Vice Chair for Supervision, Michael Barr, announced a watered-down version of the Basel III Endgame regulations. The revised rules will increase capital requirements for the largest banks by about 9%, significantly less than the originally proposed 19% hike. While this adjustment was expected, it did little to counteract the day’s negative sentiment.

Citigroup and Bank of America also saw declines, with their shares falling 2.7% and 0.4%, respectively, as the market absorbed the dual impact of financial warnings and regulatory updates.

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