Shares of several major banks tanked on Friday—even after reporting solid quarterly earnings—as reports underwhelmed investors and some firms warned about rising expenses and “inflationary pressures,” which could impact future profits.
Shares of JPMorgan Chase, the largest U.S. bank by assets, lost nearly 6% on Friday, despite beating profit and revenue estimates.
It was the bank’s smallest earnings beat in the last seven quarters, and JPMorgan’s CFO lowered guidance on company-wide returns, citing “headwinds” including “inflationary pressures.”
Shares of Citigroup similarly fell over 2% after reporting solid revenue and profit numbers, as investors were particularly alarmed by the bank’s steep drop in profits.
The company’s net income fell 26% in the fourth quarter, with Citigroup blaming rising expenses for the sharp decline.
The only major bank to report earnings and buck the trend on Friday was Wells Fargo, shares of which jumped nearly 3% after better-than-expected revenue and a large jump in profits.
The fourth-largest U.S. bank by assets, Wells Fargo said lending activity is picking up again, adding that the latest quarterly results were boosted by an $875 million reserve release, which had been set aside to shield against loan losses.
Bank stocks have outperformed in recent weeks amid a rising interest rate environment, with many analysts predicting upside ahead in 2022. Rising rates typically allow banks to charge more for loans and produce higher yields on cash holdings, which helps boost profit margins. While headline revenue and profit numbers reported by some major banks on Friday were by no means weak, the reports appear to have underwhelmed Wall Street with investors possibly expecting more.
“The big thing that stands out to us is expenses,” says Vital Knowledge founder Adam Crisafulli, predicting that it is “likely to be a theme over the coming weeks as additional Q4 results get reported.” JPMorgan’s rising expense guidance, in particular, is the “most important piece of macro news all week” because it signals the rising risks of both wage inflation and corporate margin headwinds, he says.
Wells Fargo was one of the top-performing bank stocks last year, surging 59% and beating out the likes of JPMorgan Chase and Bank of America, which rose around 25% and 47% in 2021, respectively.