Bank earnings fail to impress investors as recession worries mount

New York

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

Trading was choppy, with most bank stocks falling at the open before rebounding. Shares of JPMorgan Chase (JPM) rose about 1% late in the morning while BofA (BAC) was flat. Wells Fargo (WFC), which reported earnings that fell short of Wall Street targets, fell 1.5%. Citi (C) rose 1% while BlackRock (BLK) slipped around 1%.

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

Investors might have been concerned by the pessimistic tone of the big banks. Policymakers are clearly still worried about inflation and the threat of a recession this year following several large interest rate hikes by the Federal Reserve.

JPMorgan Chase CEO Jamie Dimon said in the bank’s income statement that while the economy is still strong and consumers and businesses are spending and healthy, “we still don’t know the ultimate effect of headwinds from geopolitical tensions, including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that erodes purchasing power and pushes interest rates higher.

The bank added in the earnings release that it now expects a “mild recession” as its base economic scenario. Chief Financial Officer Jeremy Barnum added on a conference call with reporters that in addition to the downturn that has already begun in his home loan unit, he is starting to see “headwinds” in auto loans.

Meanwhile, BofA CEO Brian Moynihan noted that it is “an increasingly slow economic environment” and Wells Fargo CEO Charlie Scharf said “we are watching the impact of the price increase on our customers”. Wells Fargo recently announced its intention to withdraw from its massive mortgage business.

Banks are clearly worried about an impending recession, and Wall Street has taken notice.

Moody’s Investors Service analyst Peter Nerby noted in a report that “credit provisions are rising” at JPMorgan Chase and that Citi “has been building up capital and reserves in anticipation of a downturn in major markets.”

Fed 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 a statement. E-mail.

Concerns about the economy were one of the reasons stocks plunged in 2022, suffering their worst year since 2008. Following the Wall Street meltdown, there was a major downturn in trading activity. mergers and IPOs.

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

Goldman Sachs (GS) and Morgan Stanley (MS) will provide more color on the health of Wall Street next Tuesday when they both report their fourth quarter results.

Goldman Sachs, which has been aggressively building a consumer banking unit in recent years, has struggled to make money in that division. Goldman Sachs revealed in a regulatory filing on Friday that it has lost more than $3 billion in its consumer business since 2020.

There were, however, some 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 quarters as shares soared 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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