What's going on?
America’s biggest bank, JPMorgan Chase, missed profit expectations on Tuesday for the first time in nearly four years.
What does this mean?
JPMorgan reported disappointing revenue at its fixed income division (which primarily trades bonds, but also handles currencies and commodities). A particularly rough December dragged quarterly revenue there down 18% compared to a year ago. Rival Citigroup experienced a similar thing, on Monday announcing fixed income trading revenues down 21% on the year before, although it narrowly beat predictions for overall profit.
“Re-established 2018” competitor Wells Fargo also beat profit expectations on Tuesday. Still smarting from growth restrictions and $5 billion of fines and expenses related to its scandalous past, Wells (like Citi) had a successful cost-cutting program largely to thank for its profit beat. Like the Macarena, however, some tricks are difficult to repeat.
Why should I care?
For markets: Too much uncertainty – even for investors.
The last quarter of 2018 saw gathering clouds spoil the blue skies of earlier in the year. When markets move, banks’ trading divisions typically rake in the fees as investors reshuffle their portfolios in an attempt to make – or at least avoid losing – money. But when things get too volatile, investors may avoid trading altogether – and it looks like that’s what happened at banks’ fixed income departments in late 2018.
The bigger picture: People still borrowed money.
The silver lining for Citigroup was $2 billion extra revenue from lending in the quarter – and JPMorgan also reported strong loan growth. With people still borrowing money and wages rising, a potential uptick in spending could spell good news for consumer goods companies. Banks usually kick off earning seasons: we’ll be hearing more from other kinds of companies in the coming days and weeks.