U.S. banks build Russia reserves; trading a bright spot in results

div classBodysc17zpet90 cdBBJodivpBy Michelle Price and Matt Scuffhamp

pWASHINGTON Reuters – Some big U.S. banks 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 U.S. economy, although trading continues to be bright spot for Wall Street.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pJPMorgan Chase & Co, Goldman Sachs Group Inc and Citigroup Inc combined put aside a 3.36 billion in credit loss reserves in the first quarter, the banks said. p

pThats a reversal from the past 12 months when lenders released reserves after COVID19related losses failed to materialize, signaling lenders believe the economic rebound from that crisis may be shortlived as inflation soars and the Ukraine conflict roils markets and dampens global growth. p

pCitigroup, the most global U.S. bank, bore the brunt, adding 1.9 billion to its reserves related to its Russia exposure and the war‘s broader macroeconomic impact. The bank’s executives said it could lose 2.5 to 3 billion on its Russia exposure. p

pJPMorgan, the countrys largest lender, on Wednesday added 902 million to its reserves, driven by “the probability of downside risks due to high inflation and the war in Ukraine,” as well as accounting for Russiaassociated exposure. It has said it could lose 1 billion on its Russia exposure over time. p

pGoldman likewise cited “macroeconomic and geopolitical concerns” among other reasons for its 561 million provision and said it will take a 300 million first quarter hit on Russia. p

pSoaring inflation could dent consumer spending while aggressive Federal Reserve interest rates rises aimed at reiningin prices will likely crimp loan growth, analysts said.p

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

pStill, some banks like Morgan StanleyN> and Wells Fargo & Co have little direct Russia exposure. Wells Fargo, a domestic focused bank with a small capital markets business, actually released 1.1 billion of pandemic reserves.p

pWells chief executive Charles Scharf nevertheless warned on the economic outlook in a change of tone from previous quarters, noting rate hikes will “certainly” reduce growth. “The war in Ukraine adds additional risk to the downside,” he added.p

pWells Fargo‘s shares were down 6 and Citi’s were up nearly 2. p

pTRADING, M&Ap

pBanks trading businesses, however, performed better than analysts had anticipated as clients rejigged portfolios in response to expected rate hikes and the war.p

pAnalysts had forecast trading revenue declines of 10 to 15 across the board compared with 2021 when central bank moves to stimulate the economy amid the pandemic saw equity indexes hit record highs and drove a trading bonanza across Wall Street. p

pGoldman Sachs said global markets first quarter revenues rose 4, driven by a 21 rise in fixed income revenues. Morgan Stanleys overall trading revenue fell just 6. The banks share prices rose 1.3 and 2.7 respectively. L3N2WC2E1][L3N2WC2EO]p

p“Equity and fixed income again delivered exceptional results, particularly in Asia and Europe as we supported our global clients amid a turbulent backdrop,” Chief Executive James Gorman told analysts on a conference call.p

pJPMorgan also reported a betterthanexpected trading performance on Tuesday, with overall markets revenues down just 3 compared to last year.p

pEquity underwriting fees slumped though as stock market listings dried up due to volatility. Goldman Sachs and Morgan Stanley both reported an 83 decline in equity underwriting revenues.p

pThe picture for the M&A advisory business was mixed. Executives said pipelines remain healthy but some companies are pausing transactions until markets stabilize. Some deals initiated before the war were completed in the first quarter. p

pMorgan Stanley said advisory revenues nearly doubled from a year ago driven by completed M&A transactions. Goldman Sachs said revenues at its advisory businesses were “essentially unchanged.”