Big Bank earnings point to a grim season

(L-R) Brian Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, Chairman and CEO of JPMorgan Chase; and Jane Fraser, CEO of Citigroup; testify during a Senate Banking Committee hearing at the Hart Senate Office Building on December 06, 2023 in Washington, DC.

Win Mcnamee | Getty Images

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What you need to know today

Banks kick off earnings
Four of Wall Street’s Big Banks reported earnings Friday. JPMorgan Chase started the season with lower fourth-quarter profit as it paid a $2.9 billion fee linked to the rescue of some regional banks last year. Citigroup reported a $1.8 billion quarterly loss, while also announcing that it would slash 10% of its workforce. Bank of America’s fourth-quarter net income fell more than 50% from a year ago, while Wells Fargo reported higher quarterly earnings but warned about lower interest income this year.  

Positive inflation signal?
An unexpected decline in wholesale prices indicated inflation could be declining for good. The Labor Department’s producer price index fell 0.1% in December, as opposed to a 0.1% rise seen by economists surveyed by Dow Jones. PPI data measures inflation from the producer or manufacturer’s perspective.

Markets rose for the week  
The blue-chip Dow Jones Industrial Average shed over 100 points on Friday but rose 0.3% for the week. The S&P 500 and the Nasdaq closed the day nearly flat, while also ending higher for the week. Markets digested the start of the earnings season and an unexpected decline in producer prices. In Asia, China stocks erased losses from earlier in the session after the country’s central bank left its medium-term policy loans rate unchanged, while Taiwan stocks gained after election.

China skeptic wins Taiwan elections
Taiwan’s Lai Ching-te won the island’s presidential election on Saturday. This was the Democratic Progressive Party’s third straight win. Lai, who is seen as a strong China skeptic, won by more than 40% of the popular vote. He said he was “determined to safeguard Taiwan from threats and intimidation from China.” Beijing dismissed his victory.

[PRO] Goldman Sachs picks unloved stocks
Goldman Sachs said Europe’s utilities sector may not have had much action in the last three years, but there could be a potential shift waiting to happen. The investment bank names which European stocks, that have lagged the broader market by nearly 20%, are worthy plays in the industry in 2024.

The bottom line

Fourth-quarter earnings have officially begun with four of Wall Street’s top six banks reporting rather bleak results.

JPMorgan Chase, the biggest U.S. bank by assets, paid a sizeable fee linked to the government seizures associated with regional banking crisis last March, which impacted its earnings.

CEO Jamie Dimon said: “the U.S. economy continues to be resilient, with consumers still spending, and markets currently expect a soft landing.”

But he added that deficit spending and supply chain adjustments “may lead inflation to be stickier and rates to be higher than markets expect.”

Citigroup was also hit by last year’s regional banking crisis but focus was mostly on CEO Jane Fraser’s massive overhaul plan aimed at lifting sentiment around the bank’s financial health and also its stock price.

The third largest U.S. bank by assets said it will slash about 20,000 jobs over the “medium term,” but did not make it immediately clear on the exact duration. Citigroup has lagged its Wall Street peers since the 2008 financial crisis and remains the lowest valued among the top six banks.

Outlook from Wall Street’s biggest lenders was cautious against the backdrop of markets pricing in interest rate cuts by the Federal Reserve as early as March. Lower rates hurt the net interest income generated by banks.

Separately, data showing a decline in wholesale prices came as a positive surprise. It came a day after prices consumers pay for goods and services rose 0.3% in December and were up 3.4% on the year. Still remaining much above the Fed’s 2% target for the year.

“What inflation risks remain in the U.S. economy clearly cannot be sourced to any upward pressure in producers’ costs,” said Kurt Rankin, senior economist at PNC.

“Whether surveying from producers’ intermediate or final demand perspective, there is little to no pricing pressure headed into the U.S. economy from the supply side entering 2024.”

During Asia hours, Taiwan’s election results stole the show. Voters in the island chose the ruling Democratic Progressive Party, or DPP for a third straight presidential term, handing victory to China-skeptic Lai Ching-te.

Lai, who won by more than 40% of the popular vote, said he was “determined to safeguard Taiwan from threats and intimidation from China.” 


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