Goldman Sachs led several money center banks reporting early Thursday, as a rebounding economy collides with rising prices. GS stock jumped. Banks stocks overall were mixed.
Goldman shares popped 2.1%. Morgan Stanley jumped 1.8% after reporting its first quarter results. Wells Fargo slumped 3.5% as revenue came in below the analyst target.
JPMorgan Chase shares traded flat, after reporting mixed first-quarter results on Wednesday, and warned of "significant geopolitical and economic challenges" ahead as Russia's war against Ukraine continues. JPMorgan shares traded effectively flat in premarket action.
Goldman Sachs Earnings
Estimates: Wall Street expects Goldman Sachs' earnings to drop 51% to $9.03 per share. Revenue was expected to slide 32% to $12.013 billion.
Results: Earnings fell a less-than-expected 42%, to $10.76 a share. Revenue slumped 27% to $12.93 billion, also a smaller-than-forecast decline. Revenue from asset management tumbled 88% during the quarter, to $546 million. Consumer and wealth management revenue rose 21%, to $2.1 billion.
Prior to the release, CEO David Solomon, during a conference in February before Russia's invasion, said he expected investment banking and M&A activity would continue to be healthy this year. But he said there would be fewer IPOs this year than last. IPO activity has dried amid weak stock markets in 2022.
Goldman Sachs stock rose 0.4%. Rival Morgan Stanley edged up 0.2%. Morgan Stanley also reports on Thursday.
JPMorgan Earnings
JPMorgan's earnings fell to $2.63 a share, down 42% from a year ago. That was below estimates for $2.72 per share, according to FactSet.
Revenue came in at $31.59 billion, a 5% dip. The top-line figure surpassed estimates for $30.601 billion.
The company also reported a $902 million credit reserve build "driven by increasing the probability of downside risks due to high inflation and the war in Ukraine" and other exposure to Russia. JPMorgan also reported $524 million in losses in its corporate and investment bank division due to commodities exposure and markdowns related to "Russia-associated counterparties."
"We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine," Dimon said in a statement.
During JPMorgan's earnings call with analysts, Dimon said he didn't think a recession would happen in the U.S. this year. But he said forecasting was difficult, and often fruitless.
"First of all, I can't forecast the future any more than anyone else," he said during the call. "And the Fed's forecasts it, and everyone forecasts it, and everyone's wrong all the time."
He also said that "usually wars don't necessarily affect the global economy in the short run. But there are exceptions to that. This may very well be one of them."
In Dimon's annual letter to shareholders earlier this month, he said the bank's economists expected the war and sanctions to shrink Russia's economy by 12.5% by midyear. Those economists also expected the war to cut economic growth in the U.S. to 2.5% this year, compared to earlier forecasts for a 3% gain.
JPMorgan's total markets trading revenue fell 3% during the quarter. Fixed-income markets revenue fell 1%. Equity markets revenue fell 7%. Investment banking revenue slid 28%, due to lower underwriting fees for stock and debt issuances.
JPMorgan Stock, Bank Stocks
JPMorgan stock fell 3.2% to 127.30 on Wednesday. Shares hit their lowest level since January 2021.
The stock has a Composite Rating of 39. Their EPS Rating is 65. The stock's relative strength line has fallen.
Among other bank stocks, Bank of America slipped 0.9%. That stock was consolidating. Wells Fargo edged up 0.25%, and was consolidating as well. Citigroup retreated 0.8%.
Bank of America reports next week. Results from Wells Fargo and Citigroup are due Thursday.
The Federal Reserve in March raised its key interest rate for the first time since 2018. Doing so typically allows banks to charge more on their own loans and increase profit. The central bank has signaled it could get more aggressive with its rate-hike trajectory.
Still, bank stocks in recent weeks have fallen on worries over a flattening yield curve, a measure of the gap between rates on short-term and government debt. A flatter curve can be a sign of increasing investor anxiety about the economy, and the rates can affect rates on mortgages and the cost of borrowing elsewhere.
'Treacherous' Terrain For Bank Stocks
As more banks prepare to report, analysts, as they are elsewhere, will be trying to gauge whether higher prices have affected demand from banks' customers. Meanwhile, the flattish yield curve isn't good news for traditional bank profitability, in which banks borrow short and lend long.
Troy Rohrbaugh, JPMorgan's head of global markets, said at a conference last month that turbulence around Russia — from sanctions to its role as a supplier of oil and wheat — had left clients in its trading business anxious. Prices for those commodities spiked after the invasion.
"The markets are extremely treacherous at the moment," he said. "There's a lot of uncertainty. There are a lot of clients that are under extreme stress."
He said the bank's first-quarter-to-date markets revenues, as of earlier that month, were down 10%. But he said the bank wouldn't be providing further forecasts.
That sentiment follows stronger trading results and greater optimism a year ago. Dimon, in JPMorgan's first-quarter earnings release last year, said government aid and "euphoria around the potential end of the pandemic" had the potential to fuel economic growth for years.
Still, in last year's fourth quarter, results of which were reported in January, a jump in merger deals and a strong IPO market boosted JPMorgan's investment banking. But analysts expressed concerns about the bank's ability to grow profit, as it invests in technology and tries to open new branches and attract staff.
Barron's, citing data from Dealogic, said deal making volumes had weakened in the first quarter. The publication said the transaction pipeline was still solid, but that a stiffer regulatory environment had slowed the process to get them done.
