JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock all posted results that beat Wall Street estimates on Friday, but investors were still a bit underwhelmed at the start.
Trading was choppy, with most banking stocks falling at the open before recovering. Shares of JPMorgan Chase
(JPM) were up about 2.5% in late afternoon trading, while BofA
(BAC) has grown by 2%. Wells Fargo
(WFC), which reported earnings that missed Wall Street targets, reversed earlier losses and rose 3%. You are
(°C) rose 2%, while BlackRock
(BLACK) it was flat.
“Earnings were solid, but the market is concerned about recessionary concerns,” said John Curran, managing director and head of North American banking coverage at MUFG.
Investors may have been unsettled by the dovish tone of the big banks. Executives are clearly still worried about inflation and the threat of a recession this year after several big interest rate hikes by the Federal Reserve.
JPMorgan Chase CEO Jamie Dimon said in the bank’s earnings report that while the economy is still strong and that consumers and businesses are spending and healthy, “we don’t yet know the ultimate effect of the headwinds coming from geopolitical tensions, including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that erodes purchasing power and raises interest rates.”
The bank added in the earnings release that it now expects a “mild recession” as the main economic case. CFO Jeremy Barnum added on a conference call with reporters that in addition to the slowdown already underway in the home loan unit, he is starting to see “headwinds” in auto lending.
Meanwhile, BofA CEO Brian Moynihan noted it was an “increasingly slowing economic environment,” and Wells Fargo CEO Charlie Scharf said “we are carefully watching the impact of higher rates on our customers.” Wells Fargo recently announced plans to exit its massive mortgage business.
Banks are clearly worried about the looming recession, and Wall Street is paying attention.
Moody’s Investors Service analyst Peter Nurby noted in a report that “loan provisions are increasing” at JPMorgan Chase and that Citi is “building capital and reserves in anticipation of a slowdown in core markets.”
The Fed’s rate hikes aren’t helping either.
“Higher-than-expected interest rates pose a significant risk to the outlook for credit quality, loan growth and net interest margins,” David Wagner, portfolio manager at Aptus Capital Advisors, said in an email.
Worries about the economy were one of the reasons stocks tumbled in 2022, suffering their worst year since 2008. As a result of the Wall Street slump, there was a big slowdown in merger and IPO activity.
This hurt the investment banking business for the leading banks. JPMorgan Chase and Citi said advisory fees fell nearly 60% in the quarter.
Goldman Sachs, which has aggressively built a consumer banking unit over the past few years, has struggled to make money in that division. Goldman Sachs disclosed in a regulatory submission Friday that it has lost more than $3 billion in its consumer business since 2020.
Still, there were signs of optimism. BlackRock, which owns the massive iShares family of exchange-traded funds, reported a rebound in assets under management from the third to fourth quarter as shares surged in October and November.
“The current environment offers incredible opportunities for long-term investors,” BlackRock CEO Larry Fink said in the earnings release.
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