The Ukraine war has negatively affected a wide range of industries globally, with corporations in sectors like energy, banking, travel, and international payments taking a severe body blow. A new report has highlighted that the banking industry has taken a more-than-proportionate impact from Russia's war in Ukraine.
MarketWatch has reported that the March quarter earnings of major US banks will reveal the impact of the war on the financial industry, especially the US banking behemoths on account of a slump in investment activity.
Global Investment Banking Revenue
At the beginning of the war, there was optimism that the US banks were not likely to be severely affected by the war as they had insignificant exposure to Russia. However, as per the latest report, major banks have suffered due to a host of factors.
JPMorgan Chase & Co.received nearly $1.8 billion in global investment banking revenue during the last three months, which was down from about $3 billion registered in the same period a year ago.
Goldman Sachs reported about $1.6 billion in investment banking revenue, which was down from $2.9 billion in the same period in 2021.
Apart from JPMorgan and Goldman, other major banks like Bank of America, Morgan Stanley, Citigroup and Wells Fargo are also expected to pare down revenue expectations for the year, analysts expect.
The restrictions on doing business with Russia, fears about a possible economic slowdown due to the war, rising inflation, as well as forced recalibration of banks' overseas plans damped the spirits in the banking sector. With the bond yields suggesting a potential recession, the outlook could turn murkier for the industry in the coming quarters.
Bank stocks have performing under par so far this year. The Financial Select SPDR Fund XLF is down 4.9 percent in the year. JPMorgan Chase and Goldman Sachs are down almost 20 percent apiece on the Dow Jones Industrial Average.
Piper Sandler analyst Jeffrey J. Harte has cut profit estimates and the price targets on all these major banks to reflect capital markets related revenue headwinds amid an increase in macro-uncertainty and market volatility, MarketWatch reported.
However, exuding confidence that an upturn is expected n the industry, Harte has said the drop in investment banking revenue may not last much longer. He says a rebound is possible because the deals pipeline is 'robust' in the equity markets.
When the war started in Europe in February, there was hope that the impact on North American banks would be limited as they do not have much Russian exposure. But analysts had also warned that if the conflict lingered on, the US banking sector would be affected.
"One concern for the U.S. banking system is the potential for higher inflation for a longer period of time, especially considering the recent spike in energy prices ... If prolonged, this could lead to a weakening of asset quality metrics over the longer-term," DBRS Morningstar analysts had said.