The financial sector has already fallen sharply, even though the Fed has not yet started cutting interest rates.

On Tuesday local time, US stocks' financial sector experienced a collective plunge, with JPMorgan leading the decline in the Dow Jones stocks.

JPMorgan fell by 5.19%, dropping by nearly 7% at one point, marking its largest decline since June 2020.

The KBW Nasdaq Bank Index, which includes 24 banks, fell by about 1.9%, Goldman Sachs fell by 4.39%, Capital One Financial, a credit card loan institution, fell by 3.23%, and Citigroup fell by 2.67%.

Recently, JPMorgan warned that investors are too optimistic about its earnings next year.

At the same time, the imminent start of interest rate cuts and concerns about the end of the "Golden Age" for banks' health and high loan profitability have become the focus of the market's attention.

Affected by the interest rate cut.

For financial stocks, the trend of interest rates is very crucial.

Currently, the Federal Reserve is about to start a rate-cutting cycle. The market generally expects that the Fed will cut interest rates by at least 25 basis points at this month's meeting, and the federal funds rate will be reduced from 5.25%-5.5% to 5%-5.25%.

The latest, Daniel Pinto, the president of JPMorgan Chase, stated that analysts' forecasts for next year's spending and net interest income (NII, the difference between bank asset revenue and debt payments) are overly optimistic.

Last year, due to the impact of rising interest rates, the NII of the four largest banks in the USA soared to an all-time high.

But in recent months, the management of JPMorgan Chase, including CEO Jamie Dimon, has been warning shareholders that the favorable period will not last forever, and the market's profit expectations for the company are too high.

Pinto stated that currently, due to the expected rate cuts by the Federal Reserve in the coming months, NII is decreasing, and the analysts' current estimates for NII are "not very reasonable".

He pointed out: "Analysts generally believe that by 2025, NII will decline by $1.5 billion, from $91.5 billion to $90 billion. This is not quite reasonable, as interest rate expectations have fallen by 250 basis points. So, I think this number will be even lower."

Pinto stated: "Obviously, as interest rates decline, the pressure of deposit repricing will decrease. But as you know, we are very sensitive to assets."

He expects JPMorgan's investment banking revenue in the third quarter to increase by about 15%, while trading revenue will remain flat or only increase by about 2%.

"Downward" management expectations

It should be noted that JPMorgan is not the only Wall Street investment bank issuing warnings.

On Monday, Goldman Sachs CEO David Solomon just warned investors that its trading revenue will decrease by about 10% in the third quarter.

Solomon also stated that due to Goldman Sachs continuing to withdraw from consumer banking business, its third-quarter earnings will also suffer a loss of $0.4 billion, attributing the revenue decline to the decrease in fixed income, currency, and csi commodity equity index trading revenue.

In addition, Citigroup's CFO also warned that trading revenues in the third quarter will decline by about 4%.

Capital requirements increased by half.

Meanwhile, US regulators are in the process of modifying the capital rules for banks.

Federal Reserve Vice Chair Michael Barr said on Tuesday that the proposed revisions would roughly halve the planned 19% capital increase for the eight largest banks in the United States by regulatory agencies.

Large banks including citigroup, bank of america, and jpmorgan will face a 9% increase in capital requirements to address financial shocks.

Barr stated that other large banks constrained by the rule will face an increase of about 3%-4% in capital requirements.

In response, Democratic Senator Elizabeth Warren criticized these measures, saying that they give banks too many concessions.

The revised bank capital standards increase the risk of future financial crises and place the burden of bailouts on taxpayers. After years of unnecessary delay, the Federal Reserve not only failed to strengthen the security of the financial system, but also succumbed to lobbying by top executives of major banks.