<\/p>\n
Rate cuts will initially be a credit negative for most U.S. banks, Moody’s Ratings said.<\/p>\n
The Federal Reserve\u2019s expected interest rate cut later this week could create new challenges \u2014 and opportunities \u2014 for banks over the coming months.<\/p>\n
Rate cuts will initially be a credit negative for most U.S. banks, according to a Monday note from Moody\u2019s Ratings. The ratings agency expects deposit costs to reprice downward more slowly than loan yields, which will constrain net interest income (NII) \u2014 most banks\u2019 largest revenue source.<\/p>\n
In the long term, however, lower deposit costs should strengthen net interest income and continued economic growth will help maintain and improve banks\u2019 asset quality, Moody\u2019s said.<\/p>\n
The Federal Open Market Committee (FOMC) is expected to carry out between a 25-basis-point and 50-basis-point cut Wednesday, following its September meeting. This would be the first rate cut since the central bank launched its rate-hiking campaign between March 2022 and July 2023, which has brought interest rates to 23-year-highs of 5.25%-5.5%.<\/p>\n
Banks have been preparing for lower NII heading towards the end of this year and into 2025. Daniel Pinto, president of JPMorgan Chase, the largest U.S. bank by assets, said last week that its previous NII outlook for 2025 of $90 billion is \u201ca bit too high.\u201d<\/p>\n
Laurent Birade, Moody\u2019s Banking Industry Practice Lead, said in a separate statement that banks can safeguard their margins by diversifying revenue streams and readjusting their interest rate frameworks.<\/p>\n
\u201cFacing the Federal Reserve\u2019s potential rate cut of 25 to 50 basis points later this month, U.S. banks stand at a crossroads of challenge and opportunity,\u201d Birade said. \u201cThis critical juncture offers banks a chance to reshape their strategies amidst the ebb and flow of economic policy.\u201d<\/p>\n
Lower rates will help boost bank equity, however, Wells Fargo banking analyst Mike Mayo said. A decline in rates could boost bank equity by an estimated 7% quarter-to-date, according to Mayo.<\/p>\n
In the past, when the Fed has cut interest rates and economic indicators haven\u2019t pointed to a recession, bank stocks have outperformed each time, Mayo said.<\/p>\n
Researchers at Goldman Sachs see a higher likelihood of a 25 basis-point decrease, which would bring interest rates down to 5%-5.25%, but they \u201care admittedly uncertain about this,\u201d they wrote in a note. Goldman is expecting three interest rate cuts this year in September, November, and December. By the end of 2024, rates could be between 75 and 100 basis points lower, according to Goldman.<\/p>\n
Moody\u2019s expects rates to decline by 200 basis points by the end of 2025 and sit at 3.25%-3.5%.<\/p>\n
The current banking environment shows that many clients are holding off on investments and taking out loans as they wait for the start of the rate-cutting cycle. A Bank of America Securities analysis of recent updates from more than 30 bank management teams found that loan demand has been \u201cnon-existent\u201d as clients wait for macroeconomic clarity following the FOMC meeting. Investment banking has also taken a hit as a result.<\/p>\n
Meanwhile, credit quality is \u201changing-in\u201d as expected with rate relief on the way and assuming the job market continues to hold up, the researchers said.<\/p>\n
BofA also said rate cuts won\u2019t be a universal net negative on net interest margins, given that banks are better prepared and higher-for-longer rates have provided funding cushions, giving banks added flexibility.<\/p>\n
The bank\u2019s strategy team likened the volatile trading environment, driven by the rate cuts, recession fears, and the U.S. presidential election, to the scene in \u201cDie Hard\u201d in which Bruce Willis has to walk barefoot over shattered glass.<\/p>\n
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Rate cuts will initially be a credit negative for most U.S. banks, Moody’s Ratings said. The Federal Reserve\u2019s expected interest rate cut later this week could create new challenges \u2014 and opportunities \u2014 for banks over the coming months. Rate cuts will initially be a credit negative for most U.S. banks, according to a Monday […]<\/p>\n","protected":false},"author":1,"featured_media":2489,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2488","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bez-rubriki"],"featured_image_src":{"landsacpe":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/09\/Federal-Reserve-97-900x445.jpeg",900,445,true],"list":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/09\/Federal-Reserve-97-463x348.jpeg",463,348,true],"medium":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/09\/Federal-Reserve-97-300x200.jpeg",300,200,true],"full":["https:\/\/relinvestmentsgroup.com\/wp-content\/uploads\/2024\/09\/Federal-Reserve-97.jpeg",900,600,false]},"_links":{"self":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/2488","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/comments?post=2488"}],"version-history":[{"count":1,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/2488\/revisions"}],"predecessor-version":[{"id":2490,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/posts\/2488\/revisions\/2490"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/media\/2489"}],"wp:attachment":[{"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/media?parent=2488"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/categories?post=2488"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/relinvestmentsgroup.com\/en\/wp-json\/wp\/v2\/tags?post=2488"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}