“The thing that gets the highest price-to-earnings value is net interest income, and that was just killed by what the Fed did,” said Charlie Peabody, an analyst at Portales Partners. “The flatness of this yield curve can endure, which is very negative for banks.”
Bank of America wasn’t the only one to issue a warning. Wells Fargo shares tanked Friday after the firm said net interest income would fall by as much as 5% this year. And Wednesday, Bank of New York Mellon shares plunged after the firm said the yield curve would crimp revenue growth for the next several quarters.
The NII outlook is a dark cloud on an otherwise strong quarter for banks’ Main Street lending operations. J.P. Morgan, the biggest U.S. bank by assets, beat analysts’ expectations on strength in its retail banking division, where profit surged 19 percent to $3.96 billion.
It was a similar story at Bank of America, the second largest U.S. bank, which posted a 25% increase in profit to $3.2 billion at its retail bank. And on Monday, investors punished Citigroup, the third biggest U.S. bank, amid signs that its consumer bank was failing to gain traction. A tough quarter for Wall Street trading and investment banking punished Goldman Sachs and Morgan Stanley, which are less diversified than their larger peers.