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Shares of U.S. banks including JPMorgan could face shrinking lending margins if the Federal Reserve starts cutting interest-rate cuts, as expected.

It was nice while it lasted.  

This time last year, investors in big U.S. banks like JPMorgan Chase (JPM - Get Report) and Bank of America (BAC - Get Report) were ebullient over the prospect of Federal Reserve interest-rate increases, hailed by Wall Street analysts as a sure-fire harbinger of higher lending profits for years to come.

Instead, a slowing U.S. economy in 2019 has brought the Fed to the point of considering interest rate cuts as soon as this month.

As a result, Bank of America and Wells Fargo (WFC - Get Report) could see Wall Street estimates of their earnings fall 7% to 8%, according to analysts at the investment bank Goldman Sachs.

The Fed is likely to cut interest rates four times over the next two years, the analysts wrote, but stock prices don't seem to reflect the likely reduction in earnings from the shrinkage in lending margins. Instead, prices for bank stocks appear to reflect just two future rate cuts.

"One of the most frequently asked questions is how many rate cuts are being priced into bank-stock prices," wrote the Goldman analysts, led by Richard Ramsden. "Assuming both rate cuts and credit normalization implies that around 50% of the downside risk is likely priced in."

Indeed, the Fed's shift in monetary policy happened so quickly that banks are still scrambling to adjust pricing on deposit accounts -- to account for the rate increases that took place from 2015 through last December.

During that period, the Fed pushed up interest rates from near zero to a range between 2.25% and 2.5%, but most of the largest banks kept deposit rates on regular savings accounts at 0.1%. Since then, competition from internet lenders -- including Goldman's (GS - Get Report) online bank, Marcus -- have forced Bank of America and Wells Fargo to boost their rates on many savings products, such as certificates of deposits.

It doesn't help that interest rates on U.S. Treasury bonds have been falling, while some forward-looking interest rates, like the London Interbank Offered Rate, or Libor, are already dropping. Many bank loans, including corporate credit lines and credit cards, are issued with variable interest rates linked to Libor. 

That pressure is likely to affect banks' second-quarter earnings scheduled for next week, starting with Citigroup (C - Get Report) on July 15, with JPMorgan and Wells Fargo scheduled to report the following day.

On average, according to Ramsden and his colleagues, large U.S. banks could see net interest margins -- what the lenders charge on loans minus what they pay out on deposits -- shrink by 0.04 percentage point from first-quarter levels.       

In fact, according to Goldman, banks could see continued competition on deposit rates this quarter -- even as the Fed starts cutting interest rates. 

By the end of 2020, average net interest margins could drop to about 2.65%, from 2.8% now, Goldman predicted. Yet the rest of Wall Street is currently anticipating a reduction to just 2.76%, according to the report. 

On the bright side, lower interest rates could entice consumers and businesses to take out more debt, which would serve to accelerate the banks' loan growth, Goldman wrote. 

A little something for the road, as it were.  

JPMorgan, Citigroup and Goldman Sachs are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.