US banks are hoarding Russian reserves; swap a bright spot in the results

Band Michelle Price and Matt Scuffham

WASHINGTON, April 14 (Reuters)Some major US banks have resumed hoarding cash to cushion potential loan losses amid growing concerns over the war in Ukraine and the impact of inflation on the US economy, although trade continues to be tight. positive for Wall Street.

JPMorgan Chase & Co JPM.NGoldman Sachs Group Inc. GS.N and Citigroup Inc. NC combined set aside $3.36 billion in reserves for credit losses in the first quarter, the banks said.

It’s a reversal from the past 12 months when lenders released reserves after COVID-19-related losses failed to materialize, signaling that lenders believe the economic rebound from this crisis may be short-lived. as inflation soars and conflict in Ukraine disrupts markets and dampens global growth .

Citigroup, the most global US bank, suffered, adding $1.9 billion to its reserves related to its exposure to Russia and the wider macroeconomic impact of the war. Bank executives said it could lose $2.5 billion to $3 billion on its exposure to Russia.

JPMorgan, the country’s largest lender, added $902 million to its reserves on Wednesday, citing “the likelihood of downside risks from high inflation and the war in Ukraine,” as well as consideration of the exhibit associated with Russia. He said he could lose $1 billion on his exposure to Russia over time.

Goldman also cited “macroeconomic and geopolitical concerns” among other reasons for its $561 million provision and said it would take a hit of $300 million in the first quarter for Russia.

Soaring inflation could weigh on consumer spending, while the Federal Reserve’s aggressive interest rate hikes aimed at reining in prices will likely dampen loan growth, analysts said.

The war in Ukraine and Western sanctions could shave more than 1% off global growth this year and add two and a half percentage points to inflation, the OECD said.

However, some banks like Morgan Stanley MRSN> and Wells Fargo & Co. WFC.N have little direct exposure to Russia. Wells Fargo, a domestically focused bank with a small capital markets business, actually released $1.1 billion in pandemic reserves.

Wells chief executive Charles Scharf nonetheless warned of the economic outlook in a change of tone from previous quarters, noting that rate hikes would “certainly” reduce growth. “The war in Ukraine adds additional downside risk,” he added.

Wells Fargo shares were down 6% and Citi shares were up nearly 2%.

TRADING, M&A

Bank trading activities, however, performed better than analysts had expected as clients reorganized their portfolios in response to expected rate hikes and the war.

Analysts had forecast a decline in trading revenue of 10% to 15% across the board from 2021, when central bank measures to stimulate the economy amid the pandemic saw stock indices hit lows record high and generated a trading bonanza on Wall Street.

Goldman Sachs said first-quarter global markets revenue rose 4%, driven by a 21% increase in fixed income revenue. Morgan Stanley’s overall trading revenue fell just 6%. Bank stock prices rose 1.3% and 2.7% respectively. L3N2WC2E1]L3N2WC2EO

“Equities and fixed income again delivered exceptional results, particularly in Asia and Europe as we supported our global clients in a turbulent environment,” chief executive James Gorman told analysts during a briefing. conference call.

JPMorgan also reported better-than-expected business performance on Tuesday, with overall market revenue down just 3% from a year ago.

Underwriting fees for shares, however, fell as stock quotes dried up due to volatility. Goldman Sachs and Morgan Stanley both reported an 83% decline in stock underwriting income.

The track record for M&A advisory business was mixed. Executives said pipelines remain healthy, but some companies are suspending transactions until markets stabilize. Some operations initiated before the war were finalized in the first quarter.

Morgan Stanley said advisory revenue nearly doubled from a year ago, driven by completed M&A deals. Goldman Sachs said revenue from its advisory business was “essentially unchanged.”

JPMorgan’s Dimon disappointed as profits fall 42%

Citigroup profit drops 46% on loan loss provisions and deal crisis

Morgan Stanley’s profit beats estimates on stronger-than-expected deals and M&As

Goldman’s profit beats strength in wealth management and trading

Wells Fargo earnings batter as falling costs hit hard by weak mortgage lending

BREAKINGVIEWS-Goldman can close Morgan Stanley’s valuation gap

(Additional reporting from Elizabeth Dilts Montage by Nick Zieminski)

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