Lower rates might hurt banks

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Lower rates might hurt banks

JP Morgan headquarters at Canary Wharf financial district at the heart of Canary Wharf financial district on 6th February 2024 in London, ******* Kingdom. 

Mike Kemp | In Pictures | Getty Images

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Unsteady marketsU.S. markets were mixed on Tuesday. The S&P 500 and Nasdaq Composite rose, buoyed by Oracle’s 10% surge, while the Dow slipped. Asia-Pacific stocks fell Wednesday. Japan’s Nikkei 225 lost around 1.4%, extending its seven-day losing streak. The ********* yen strengthened to 141.17 against the U.S. dollar, its highest this year.

First Harris-Trump debateIn their first face-to-face meeting, Vice President Kamala Harris met former President Donald Trump for their first — and perhaps only – presidential debate. On the economic front, both candidates clashed over tariffs, fracking and China policy. After the debate, Taylor Swift endorsed Harris on

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, and signed off her post as “Childless Cat Lady.”

Tough environment for ********* companiesChina’s environment for businesses is so thorny that ********* companies have grown discouraged with operating in the country, according to the EU Chamber of Commerce. If ********* companies were to invest in China further, Beijing must act on its pledges to improve the business conditions, the chamber’s paper wrote.

Big price reportsThe U.S. consumer price index for August comes out later today, while the producer price index, which measures prices at the wholesale level, will be released a day later. They’re the last major economic data the Federal Reserve will receive — and hence influence its decision on the size of cuts — before its meeting next week.

[PRO] U.S.-listed global stocksWith the

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for the U.S. economy looking uncertain, investors can turn their attention to global companies. At the same time, investors may want to stick with the safety of the U.S. stock market. CNBC Pro looked for companies headquartered overseas, but listed in the U.S. – and may experience over 100% upside, according to analysts.

The bottom line

Everyone loves lower interest rates.

As rates fall, borrowing becomes cheaper. For the consumer, that’s most felt in areas like housing; for companies, it tends to boost spending on expansion and investment.

Those acts trigger a virtuous cycle of spending, boosting consumption and growth, which in turns increases employment. The economy loves lower rates too and swells up.

There’s one industry, however, that generally enjoys higher interest rates: banking.

One way banks make money is through the net interest income. That’s the difference between the interest rate they charge on loans and the rate they offer on savings. As rates rise, banks can raise the former, which is a revenue source, while keeping the latter, a cost, low.

With rate cuts looming on the horizon, however, that age of abundance is coming to an end for big banks.

JPMorgan poured cold water on the market’s expectation of around $90 billion for NII in 2025. That number “is not very reasonable” because the Fed will cut rates, said JPMorgan President Daniel Pinto.

If the biggest bank in the U.S. thinks it can’t keep loan rates high, it’s hard to imagine smaller banks can maintain juicy NII of the previous years.

Investors didn’t take JPMorgan’s caution warmly. Its shares lost around 5% and weighed down the Dow Jones Industrial Average, which declined 0.23%.

On the other hand, the S&P 500 rose 0.45% and the Nasdaq Composite added 0.84%.

With rate cuts on the horizon, banks might experience a dip in NII revenue — but many are likely to see revenue and sentiment rise.

– CNBC’s Jeff Cox, Pia Singh and Brian Evans contributed to this story.

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