The Federal Reserve hasn’t done anything with interest rates yet, but bank earnings released Friday show that the mere anticipation of a pullback in easy money policies is weighing on the industry.
At Wells Fargo, bread-and-butter loans and strong expense management made the San Francisco-based bank the only stock winner among the largest banks in Friday’s trading session. At the other two large banks that reported, deflated fixed income, currencies, and commodities (FICC) trading led to a sour reaction from the street.
“We broke open the piñata today on earnings, the operative word is ‘in-line,’” Hennessy Funds Portfolio Manager David Ellison told Yahoo Finance Monday. “I think that’s why the stocks are trading down. There’s no surprises, there’s nothing special under the Christmas tree.”
As the Fed messages its intention to ratchet up short-term borrowing costs to quell inflation, the banking industry may be seeing a pivot away from the profitability of capital markets businesses in favor of greater net interest income in loan portfolios.
That would be a reversal of the trend seen during the early parts of the pandemic recovery, where near-zero interest rates had large banks learning on their trading desks to boost revenues.
