After blowing $ 328 billion in stock repurchases since 2017, JPMorgan, BofA, Wells Fargo, Citi, Goldman Sachs shares fall

The first quarter was bad as stock market exchanges imploded, investment banks got hit, mortgage activity stalled, other things happened.

By Wolf Richter for WOLF STREET.

Of the five major banks and bank holding companies in the U.S. after total assets – JP Morgan, Bank of America, Wells Fargo, Citigroup and Goldman Sachs Group – four reported earnings in the first quarter so far, and BofA will do so next week. These earnings reports were characterized by a sharp decline in revenue and net income with all sorts of complications in between. And as a group, their stocks continued their erratic decline, starting in November last year.

The WOLF STREET index for the market value of the five major banks has fallen by 23.5% since the most recent high in October 2021 (data via YCharts):

This debacle occurred in the midst of huge stock buybacks. These banks have been regularly highlighted among the largest stock buyback queens in the United States, except during the pandemic, where they halted practices in three-quarters.

In the five years from 2017 to 2021, the five banks have burned, wasted and destroyed $ 328 billion in cash by repurchasing their own shares to support their shares, and now their shares have nothing to show for it (data via YCharts):

Q1 was miserable as IPOs imploded, mortgage activity stalled, other things happened.

JPMorgan Chase [JPM] started the quarterly bank show on Wednesday morning when it reported that its net income fell by 42% to $ 8.3 billion in Q1 compared to Q1 last year. Revenue fell 5% to $ 30.7 billion, on a 35% dip in revenue in the investment banking department.

During the two trading days since the earnings announcement on Wednesday morning, JP Morgan’s shares fell 4.1% and have fallen 25% from their 52-week high in January.

In preparation for the rate hike-induced financial stress on borrowers, it set aside $ 902 million in loan loss reserves compared to a $ 5.2 billion benefit a year ago by releasing loan loss reserves it had created during the pandemic . And it booked $ 582 million in net deductions, bringing the total cost of credit to $ 1.5 billion.

Its Corporate & Investment Bank profit was hit by a loss of $ 524 million, “driven by widening the funding spread as well as credit rating adjustments related to both increases in commodity exposures and write-downs of receivables derivatives from Russia-associated counterparties,” the result said. release.

During the earnings call, CEO Jamie Dimon said the bank sees “significant geopolitical and economic challenges ahead due to high inflation, supply chain problems and the war in Ukraine.”

Goldman Sachs [GS] reported revenue fell 27% in the first quarter to $ 12.9 billion and net income fell 42% to $ 3.9 billion.

Goldman Sachs shares fell only slightly on Thursday, falling 24.5% from their 52-week high in early November.

Investment banking revenue fell 36% to $ 2.4 billion. It set aside $ 561 million for credit losses, compared to a $ 70 million benefit a year earlier. Asset management revenue collapsed 88% to $ 546 million, “primarily reflecting net losses on equity investments and significantly lower net income on loans and debt investments.”

But in its consumer and wealth management department, revenue grew by 21% to $ 2.10 billion. And its global market revenue rose 4% to $ 7.87 billion. And yes, given the turmoil in commodities, foreign exchange and bond markets, FICC (Fixed Income, Currency and Commodities) revenues rose 21% to $ 4.71 billion.

“The rapidly evolving market environment had a significant effect on client activity when risk mediation came to the fore and equity issuance almost came to a standstill,” the earnings announcement said.

Listings were crazy all around.

With “stock issuance almost stalled,” Goldman talks about IPOs and SPACs, many of which have imploded spectacularly over the past 12 months. I now trace some of them, including those where Goldman Sachs was the lead underwriter, in the WOLF STREET category of imploded stocks.

IPOs are massive fee generators for investment banks. But the collapse of these newly listed stocks has now essentially killed the appetite for new listings that are only fun in a relentless hype-and-hoopla market. In the first quarter, according to Renaissance Capital, there were only 18 listings, including only two in March, down from 118 listings in the second quarter last year:

Citigroup [C] reported revenue fell 2.5% to $ 19.2 billion. Net income decreased by 46% to $ 4.3 billion due to higher operating expenses (+ 15%) and credit losses of $ 755 million compared to a benefit of $ 2.05 billion a year earlier.

The problem is not the consumers in the United States; they are doing well, Citibank said in its earnings announcement: “We continue to see the health and resilience of the US consumer through our credit costs and their payment rates. We had a good commitment to key factors such as growth in card loans and strong growth in buying sales, so we like where this business is headed. “

The big culprit was investment banking, including IPOs: “the current macro background affected Investment Banking when we saw a decline in capital market activity. This remains a key area of ‚Äč‚Äčinvestment for us,” said Citigroup.

Its shares rose 1.6% on Thursday, but have fallen 36% from their 52-week high in June.

Wells Fargo [WFC] reported revenue down 5% to $ 17.6 billion. Net income fell by 21% to DKK 3.67 billion.

One of the culprits was mortgage lending activity, which fell by 33% in the quarter due to rising mortgage rates. “The Federal Reserve has made it clear that it will take the necessary steps to reduce inflation, and this will certainly reduce economic growth,” and “the war in Ukraine adds further risk to the downside,” Wells Fargo said in the earnings statement.

Shares fell 4.5% on Thursday and have fallen 23% in two months from their 52-week high in early February.

Bank of america [BAC] will report earnings on Monday. In anticipation, its shares fell 3.2% on Thursday and have fallen 25% from the 52-week high in February.

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