Bank earnings fail to impress investors as recession worries grow

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New york
CNN

JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock reported results on Friday that beat Wall Street forecasts, but investors were initially somewhat disappointed.

Trading was brisk, with most bank stocks closing at the open before rebounding. Shares of JPMorgan Chase ( JPM ) were up about 2.5% in the afternoon, while BofA ( BAC ) rose 2%. Wells Fargo ( WFC ) rose 3%, reversing earlier losses after reporting earnings that missed Wall Street targets. Citi ( C ) rose 2%, while BlackRock ( BLK ) was flat.

“Earnings were strong, but the market is dealing with fears of a recession,” said John Curran, managing director and head of banking coverage in North America at MUFG.

Investors may have been worried by the pessimistic tone of major banks. Policymakers 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 statement that while the economy remains strong and consumer and business spending are healthy, “we still have to see what the consequences of geopolitical tensions, including the war in Ukraine, the U.S., the U.S. and other countries will be.” “We don’t know.” vulnerable energy and food supplies, persistent inflation that reduces purchasing power and raises interest rates.

The bank added in the earnings statement that it expects a “mild recession” as its main economic scenario. Chief Financial Officer Jeremy Barnum added in a conference call with reporters that in addition to the downturn in his home loan division, he is starting to see “headwinds” in auto loans.

Meanwhile, BofA CEO Brian Moynihan noted it’s an “increasingly sluggish economic environment,” and Wells Fargo CEO Charlie Scharf said “we’re watching the impact of price increases on our customers.” Wells Fargo recently announced that it intends to divest its large mortgage business.

Banks are clearly worried about the coming recession, and Wall Street has noticed.

Peter Nerby, an analyst at Moody’s Investors Service, noted in his report that “loan provisions are rising” at JPMorgan Chase and that Citi is “building capital and reserves in anticipation of a downturn in major markets.”

A Fed rate hike won’t help either.

“Higher-than-expected interest rates pose significant risks to the outlook for credit quality, loan growth and net interest margin,” said David Wagner, portfolio manager at Aptus Capital Advisors. Email address.

Concerns about the economy were one of the reasons why stocks fell in 2022, experiencing their worst year since 2008. After the collapse on Wall Street, there was a big drop in trading activity. mergers and IPOs.

This has harmed the investment banking activities of major banks. JPMorgan Chase and Citi each said advisory fees fell nearly 60% in the quarter.

Goldman Sachs ( GS ) and Morgan Stanley ( MS ) will add more color to Wall Street’s health next Tuesday when they both report fourth-quarter results.

Goldman Sachs, which has been aggressively building its consumer banking division in recent years, has tried to cash in on that division. Goldman Sachs disclosed in a regulatory filing on Friday that it has incurred losses of more than $3 billion in its consumer business since 2020.

However, there were some signs of optimism. BlackRock, which owns the massive exchange-traded fund group iShares, reported a rise in assets under management in the third and fourth quarters as stocks rose in October and November.

“The current environment presents tremendous opportunities for long-term investors,” BlackRock CEO Larry Fink said in an earnings release.

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