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The Federal Reserve's expected rate cut in July is already affecting Wall Street.
All major US banks announced their second quarter results this week, with several of them recording a decline in their net interest margins due to the already sharp decline in interest rates ahead of time. of the action of the Fed. Lower rates are bad for banks as they earn less interest on sight deposits from other lending institutions.
Investors are worried that net interest margins have already begun as the Fed prepares to start cutting rates in July. During a speech in late June, Fed Chairman Jerome Powell told the Council of Foreign Relations that it was best to adjust borrowing costs sooner if signs of weakness in the economy were emerging.
New York Fed President John Williams and Fed Vice President Richard Clarida echoed similar sentiments last week, adding that it was important for central banks to act swiftly and quickly. be proactive in reducing their rates.
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The big Wall Street banks are already feeling the pinch, and that could continue if the Fed makes a further cut.
The following banks reported a decrease in their net interest margins or their forecasts for the year:
- Citi: Net interest margins decreased by 2.67% from 2.70% a year ago
- JP Morgan: $ 57.5 billion decline in net interest income outlook compared to the forecast of more than $ 58 billion announced in the first quarter
- Wells Fargo: Net interest margins increased from 2.93% last year to 2.82%
While Citi's net interest margins decreased, net interest income increased by 2%, thanks to strong credit activity. Morgan Stanley does not report net interest margins, but Jonathan Pruzen, chief financial officer of the bank, said lower interest rates would hurt wealth management margins, but the impact on equities and Fixed income securities were difficult to predict.
"The most important issue in the run-up to the earnings season was whether NIM's outlook would result in significant downward revisions to earnings per share estimates," said Saul Martinez, an badyst at UBS in the US. a research note published on Wednesday. "Until now, they did not cause us to change EPS estimates much."
Wall Street also generally saw a decline in equities and fixed income transactions. Morgan Stanley said its stock trading revenue had dropped 14%, more than any other major bank.
Goldman Sachs, which is less impacted by rate changes as it has fewer deposits in its books, has seen an increase in fixed income deals, but a decline in equities. The company also recorded investment and loan income of $ 2.53 billion, its highest level in eight years.
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