Bank of America's stock fell more than 4% in New York trading on Thursday after the lender cautioned that its net interest income — a core measure of profitability — would decline in the third quarter. The warning, delivered during an investor conference, sent ripples through global financial markets and dragged down UK-listed banking stocks in afternoon trade.
By the close in London, Barclays had fallen 2.1%, Lloyds Banking Group lost 1.8%, and NatWest shed 1.5%. The FTSE 100 index slipped 0.3% to 8,214 points, with the banking sector accounting for the bulk of the losses. The broader FTSE 250 also edged lower, falling 0.2% to 20,876.
The sell-off was driven by investor concern that the era of higher interest rates, which had boosted bank margins, is drawing to a close. Bank of America's warning came as markets increasingly price in rate cuts from the Federal Reserve later this year. Lower rates typically compress the spread between what banks pay depositors and what they charge borrowers, squeezing net interest income.
Analysts at Shore Capital noted that the warning is a 'canary in the coal mine' for the sector, suggesting that UK banks may face similar headwinds if the Bank of England follows the Fed's expected path. 'The question is not if, but when, UK lenders will start to feel the same pinch,' they wrote in a note to clients.
For UK investors and pension holders, the development is a reminder that banking stocks — a staple of many pension funds and dividend portfolios — remain sensitive to interest rate expectations. While lower rates could eventually boost borrowing and economic activity, the immediate outlook for bank profits has dimmed.
Bank of America's shares have now lost roughly 8% since the start of the year, underperforming the broader S&P 500. The bank's next quarterly report is due in October.