After spending $328 billion on stock buybacks since 2017, shares of JPMorgan, BofA, Wells Fargo, Citi and Goldman Sachs have fallen
The first quarter was shitty as IPOs imploded, investment banking took a hit, mortgage business crashed, other things happened.
By Wolf Richter for WOLF STREET.
Of the five big banks and bank holding companies in the United States by total assets – JP Morgan, Bank of America, Wells Fargo, Citigroup and Goldman Sachs Group – four have announced their results for the first quarter so far, and BofA will do so next week. These earnings reports were marked by a sharp drop in revenue and net profit, with all sorts of complications in between. And as a group, their shares continued their erratic decline that began in November last year.
The WOLF STREET index of the market capitalization of the big five banks has plunged 23.5% since its recent peak in October 2021 (data via Y-Charts):
This debacle occurred amid huge stock buybacks. These banks have consistently been among the biggest stock buyback queens in the United States, except during the pandemic, when they halted the practice for three quarters.
In the five years from 2017 to 2021, the five banks incinerated, wasted and destroyed $328 billion in cash buying back their own stock to prop up their actions, and now their stocks have nothing to show for (data via YCharts) :
The first quarter was shitty as IPOs imploded, mortgage activity crashed, other things happened.
JPMorgan Chase [JPM] kicked off the quarterly banking show on Wednesday morning when it announced that its net profit fell 42% to $8.3 billion in the first quarter from the first quarter of last year. Revenue fell 5% to $30.7 billion, following a 35% drop in revenue from its investment banking division.
In the two trading days since the earnings release on Wednesday morning, JP Morgan shares have fallen 4.1% and are down 25% from their 52-week high in January.
In anticipation of rising rate-induced financial strains on borrowers, it set aside $902 million for loan loss reserves, up from $5.2 billion a year ago thanks to the release of reserves for loan losses he had built up during the pandemic. And it recorded $582 million in net write-offs, bringing the total credit cost to $1.5 billion.
Its corporate and investment banking profit suffered a loss of $524 million, “due to the widening funding gap as well as credit valuation adjustments related to both the ‘increased exposures to commodities and impairment of derivatives receivable from counterparties associated with Russia,’ it said in the statement. Press release.
On the earnings call, CEO Jamie Dimon said the bank foresees “significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine.”
Goldman Sachs [GS] said revenue fell 27% in the first quarter to $12.9 billion, and net income fell 42% to $3.9 billion.
Goldman Sachs stock fell only a little on Thursday and is down 24.5% from its 52-week high in early November.
Investment banking revenue fell 36% to $2.4 billion. It set aside $561 million for credit losses, compared with a profit of $70 million a year earlier. Asset management revenue slumped 88% to $546 million, “primarily reflecting net losses in equity investments and significantly lower net income in loan and debt investments.”
But in its consumer and wealth management division, revenue rose 21% to $2.10 billion. And its global market revenue rose 4% to $7.87 billion. And yes, given the turmoil in the commodity, currency and bond markets, Fixed Income, Currency and Commodities (FICC) revenue jumped 21% to $4.71 billion.
“The rapidly changing market environment has had a significant effect on client business as risk intermediation has come to the fore and equity issuance has come to a virtual standstill,” said the Press release mentioned.
IPOs were shitty all around.
By “equity issuance nearly stopped,” Goldman is talking about IPOs and SPACs, many of which have imploded dramatically over the past 12 months. I am now following some of them, including those where Goldman Sachs was the lead underwriter, in the WOLF STREET category of imploded stocks.
IPOs are massive expense generators for investment banks. But the collapse of these newly listed stocks has now essentially killed the appetite for new IPOs, which are only fun in a relentless market of hype and hype. In the first quarter, according to Renaissance Capital, there were only 18 IPOs, including only two in March, compared to 118 in the second quarter of last year:
Citigroup [C] reported that revenue fell 2.5% to $19.2 billion. Net profit plunged 46% to $4.3 billion, due to higher operating expenses (+15%) and credit losses of $755 million, from a profit of $2.05 billion. dollars a year earlier.
The problem is not consumers in the United States; they are fine, Citibank said in its Press release“We continue to see the health and resilience of the American consumer through our cost of credit and their payment rates. We’ve had good engagement in key drivers such as card loan growth and strong purchase sales growth, so we like the direction this business is taking.
The big culprit was investment banking, including IPOs: “The current macroeconomic environment has had an impact on investment banking, as we have seen a contraction in activity in the capital markets. This remains a key investment area for us,” Citigroup said.
Its shares rose 1.6% on Thursday but are down 36% from their 52-week high in June.
Wells Fargo [WFC] said revenue fell 5% to $17.6 billion. Net profit plunged 21% to $3.67 billion.
One of the culprits was mortgage lending activity, which fell 33% in the quarter due to soaring mortgage rates. “The Federal Reserve has made it clear that it will take the necessary steps to reduce inflation and that will certainly reduce economic growth,” and “the war in Ukraine adds additional downside risk,” Wells Fargo said in the Press release.
Shares fell 4.5% on Thursday and are down 23% in two months from their 52-week high in early February.
Bank of America [BAC] will publish its results on Monday. In anticipation, its shares fell 3.2% on Thursday and plunged 25% from the 52-week high in February.
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