Mixed bag for US banks as conflict disrupts sector

Banks stockpiling cash to cushion potential loan losses amid Ukraine war worries

US banking giant Citigroup posted a 46 per cent plunge in first-quarter profit on Thursday as it took hits from provisions for Russia-related losses, a slump in underwriting fees and higher expenses.

It is one of several big US banks that have again started stockpiling cash to cushion potential loan losses due to growing worries over the war in Ukraine and the impact of inflation on the US economy. JPMorgan Chase, Goldman Sachs and Citigroup combined have put aside a $3.36 billion (€3.1 billion) in credit loss reserves in the first quarter, the banks said.

Citi – the most global of the US banks – added $1.9 billion to reserves. That pushed credit costs to $755 million, a contrast with the $2.1 billion benefit a year ago when it freed up loss reserves built during the Covid-19 pandemic.

The bank said it had reduced its exposure to Russia to $7.8 billion, from $9.8 billion in December. If the conflict follows a severely adverse scenario, it would now lose no more than $3 billion, down from the nearly $5 billion estimated last month.

Net income fell to $4.30 billion, or $2.02 per share, for the quarter to March 31st, from $7.94 billion, or $3.62 per share, a year earlier. Analysts on average had expected a profit of $1.55 per share.

Revenue fell 2 per cent to $19.2 billion. That was mainly due to a 43 per cent slump in investment banking revenue as last year’s rush of deals involving blank-check companies tapered off, drying up underwriting fees.

Morgan Stanley

Morgan Stanley outperformed rival Goldman Sachs in M&A advisory and its traders fared better than expectations, helping the investment banking powerhouse beat first-quarter profit estimates by a wide margin.

Like other Wall Street banks, Morgan Stanley’s underwriting business took a hit, with revenue at its equity underwriting business falling nearly 83 per cent percent from a year ago when it generated handsome fees from a spate of high-profile IPOs.

"Results from Morgan Stanley were pretty good, in my opinion, reflecting considerable resiliency given the geopolitical events and substantial volatility in equity, fixed income and commodities markets," said James P. Shanahan, senior equity research analyst, North American financials, at Edward Jones.

Morgan Stanley’s profit fell 11 per cent to $3.54 billion, or $2.02 per share, in the quarter, ahead of analysts average expectations for a profit of $1.68 per share.

Total expenses fell to $4.83 billion from $5.3 billion a year earlier. Net revenue fell 6 per cent in the quarter to $14.8 billion, but beat estimates of $14.27 billion.

Wells Fargo

Wells Fargo & Co posted a 21 per cent drop in first-quarter profit but beat Wall Street expectations on Thursday, as the release of funds set aside to cover potential pandemic-related loan losses cushioned a decline in mortgage lending.

The fourth-largest US lender posted a profit of $3.67 billion, or 88 US cents per share, for the three months to March 31st, compared with $4.64 billion, or $1.02 per share, a year earlier. – Reuters

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