JPMorgan, Goldman Sachs shares move sharply lower on Solomon's deal comments, revised capital requirements

By Steve Gelsi

Bank stocks fall after the Goldman CEO's comments at a conference and the Federal Reserve's plans for reduced capital requirements

JPMorgan Chase & Co. and Goldman Sachs Group Inc.'s shares led sharp losses for bank stocks Tuesday, after Goldman Chief Executive David Solomon noted a drop in deal-making activity as well as a sell-the-news reaction to lighter capital requirements for financial firms.

Additionally, JPMorgan Chase CEO Jamie Dimon said he wouldn't rule out stagflation for the U.S. economy down the road, while consumer-finance company Ally Financial Inc. warned of pressure on its credit quality as consumers continue to struggle with inflation.

Banks also gave back some of their gains for the year amid speculation over the impact of lower interest rates, and after a long-anticipated, revised set of capital requirements from the Federal Reserve finally took form.

JPMorgan Chase's stock (JPM) was moving lower by 6.8% in what would be its worst one-day drop since June 11, 2020, when it fell by 8.34%. Goldman Sachs shares (GS) were retreating by 4.9%.

Elsewhere in the banking sector, Bank of America Corp. (BAC) was falling 2.7%, Wells Fargo & Co. (WFC) was dropping 2%, Citigroup Inc. (C) was moving lower by 4.5% and Morgan Stanley (MS) was declining by 2.8%.

The Financial Select SPDR ETF XLF was down by 1.9% and the KBW Nasdaq Bank Index BKX was heading lower by 3.4%.

JPMorgan Chase and Goldman Sachs are among the 30 stocks in the Dow Jones Industrial Average DJIA, which was falling 0.7%, or 270 points.

On Tuesday, Michael Barr, vice chair of supervision for the Federal Reserve, outlined revisions to the so-called Basel III endgame capital-requirement proposals.

The Fed rolled back some of its initial proposals from last summer in a move that was widely expected. The revisions will be aired publicly for a 60-day comment period once they're approved by the full Federal Reserve Board.

Meanwhile, at the Barclays Global Finance Conference finance conference in New York on Monday, Goldman CEO Solomon said that the bank is seeing a roughly $400 million hit to revenue from a drop in trading activity, as well as the impact of reducing its private-equity investment portfolio.

Solomon cited a "more challenging" macroeconomic backdrop, particularly amid the stock-market selloff in early August that saw equities drop sharply.

Goldman's third-quarter fixed-income and equities trading is down about 10% against an "extremely strong" year-ago quarter, mostly due to lower bond trading, he said.

A pickup in private-equity deal-making has been slower than expected, Solomon noted, and the bank has been reducing its investments in its private company portfolio in a move that will reduce the amount of revenue it will book from its portfolio companies.

These are two key factors that will impact Goldman's third-quarter revenue by about $400 million, he said.

Overall, the operating environment has been good, with a "very strong" client base, Solomon added.

Speaking at the Council fo Institutional Investors in New York on Monday, JPMorgan Chase's Dimon reiterated earlier comments that "the worst outcome" for the U.S. economy would be "stagflation," in the form of a "recession [and] higher inflation."

"And by the way, I wouldn't take it off the table," he added, according to a report.

Ally Financial (ALLY) said Tueday that credit-quality challenges had intensified in its core businesses of auto and mortage loans.

"Our borrowers is struggling with a high inflation and cost of living, and now, more recently, a weakening employment picture," Ally Financial's Chief Fianncial Officer Russ Hutchinson said at the Barclays conference on Tuesday.

Hutchinson said company still plans to achieve a 15% return on tangible equity but "the road is harder and the timeline to get there is longer."

Ally Financial's stock was falling 18% Tuesday.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-10-24 1342ET

Copyright (c) 2024 Dow Jones & Company, Inc.