JPMorgan steals the show as banks lift curtain on earnings

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New York CNN  — 

First quarter earnings season kicked off last week with reports from some of the largest names in finance with investors watching closely for any potential inklings of an economic downturn.

JPMorgan Chase, Citigroup and Wells Fargo, as well as PNC and BlackRock (BLK), all published their reports on Friday — giving the public some insight into how they fared through the first three months of the year, which included the collapse of Silicon Valley Bank and Signature Bank.

And it appears as though they largely made it out unscathed. The largest banks in the country benefited from the same heightened interest rates that tipped those regional banks over the edge, sending depositors fleeing to safer names.

All beat estimates: PNC (PNC) and Wells Fargo (WFM) by about 9%, Citi by around 13% and JPMorgan (JPM) by nearly 21%.

Still, the market reaction wasn’t equal. JPMorgan shares surged 7.5% on Friday, the stock’s largest one-day rally since November 2020. Citigroup shares advanced 4.8%, while Wells Fargo closed the day down 0.1%. PNC stock also felt the pressure.

Before the Bell spoke with Steve Sosnick, chief strategist at Interactive Brokers, to discuss Friday’s big bank earnings and explain that stock discrepancy.

This interview has been edited for length and clarity.

Before the Bell: What are your takeaways from Friday’s earnings reports?

Steve Sosnick: It’s JPMorgan and the other guys — Jamie Dimon is Bruce Springsteen and everyone else is the E Street Band. The market loved the first quarter results, the bank is firing on all cylinders and they’re clearly benefiting from the recent tremors in the banking industry.

Wells Fargo appeared to have a good, solid quarter but their stock was essentially unchanged on Friday. Citigroup, which should have benefited from the same trends, had a nice day. PNC, which is one of those super-regional banks that we need to pay a little more attention to, saw its stock fall. But JPMorgan was off to the races.

I’ve always complained about banks reporting their quarterly earnings first because they’re extraordinarily idiosyncratic. No other company is really dependent upon trading results or investment banking for their bottom line. They’re far more interest rate sensitive and certainly more yield curve sensitive than essentially any other industry. I’ve never liked the fact that they lead off because I think people extrapolate from them. But I think you’re extrapolating from a strange subset.

Why did JPMorgan stock outperform its competitors?

They all beat estimates, but shares of JPMorgan surged way beyond the competition.

They have good management. Jamie Dimon has become the face of the industry and his team benefits because of that — there are certain advantages to being the market leader. People who pulled their money from regional banks looking for safety disproportionately sent it to JPMorgan.

There are concerns about the health of commercial real estate (CRE)? What did you hear?

This was another situation where CEOs were careful not to amplify fears. I do think there was a lot of caution given. But I think the real action comes this week, because we’re going to hear from pure banks. We’re going to hear to what extent money might have flowed out of some of these banks and into the cohort we heard from on Friday. A lot of smaller and midsize banks do more construction lending.

We didn’t learn a ton about CRE today. Ultimately we need to talk about it, but maybe in the short term it’s better to say less.

Economists at the Federal Reserve recently predicted that the US will enter a slight recession later this year. But US Treasury Secretary and former Fed chair Janet Yellen doesn’t agree.

She believes that a soft landing is still possible.

“I do think there’s a path to bring down inflation while maintaining what I think all of us would regard is a strong labor market,” Yellen told CNN’s Fareed Zakaria in an exclusive interview Friday. “And the evidence that I’m seeing suggests we are on that path.”

Yellen added that she didn’t want to downplay the many risks to the economy including Russia’s war in Ukraine, which raised food and energy prices, and pandemic-era supply chain disruptions, which caused key material shortages that gummed up critical pieces of the economy, such as the auto industry.

“We’re seeing those supply chain bottlenecks that boosted inflation, they’re beginning to resolve,” she said. “We had big shifts in the way people live and low interest rates, and housing prices rose a lot. Now, housing prices have essentially settled down.”

Yellen also told Zakaria that Russia should pay for the damage caused in Ukraine and that talks are ongoing as to how to make that happen.

“That’s a responsibility that I think the global community expects Russia to bear,” she said. “This is something we’re discussing with our partners, but there are legal constraints on what we can do with frozen Russian assets.”

There’s no denying that big banks and financial institutions benefited from the collapse of SVB and Signature Bank, either through new deposits or more flow into money market funds. But two of the biggest names in finance have addressed that windfall very differently.

JPMorgan’s Dimon insisted in his letter to shareholders last week that, “these failures were not good for banks of any size.”

The CEO of the largest bank in the United States said that “while it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.”

BlackRock’s Larry Fink, meanwhile, struck a more bullish tone.

“I believe today’s crisis of confidence in the regional banking sector will further accelerate capital markets growth, and BlackRock will be a central player,” he wrote in BlackRock’s earnings release on Friday.

A lack of trust in regional banks will drive more investment into money market investments, and BlackRock is poised to benefit as that happens. “Increased financing through the capital markets will require the scale, multi-asset capabilities and excellence in portfolio construction that BlackRock consistently delivers across market cycles,” he said.

“Throughout our history, moments of market dislocation and disruption have served as inflection points for BlackRock,” concluded Fink.