(Bloomberg) -- Traders at Wall Street's biggest investment banks had a better-than-expected quarter as the war in Ukraine compounded volatility already simmering on inflation concerns and a lingering pandemic. But as fears of recession creep in, questions are emerging about future earnings growth.
Goldman Sachs Group Inc. and Morgan Stanley posted surprise increases in trading revenue while Citigroup Inc. and JPMorgan Chase & Co. also surpassed analysts' expectations for first-quarter results. The banks' top executives cited the turbulent geopolitical and macroeconomic picture as they outlined their hauls.
“When you think about the inflationary pressures, the supply-chain disruptions, the political tensions, those things led to increased volatility and really a conducive environment for market-making, and we took advantage of that,” Citigroup Chief Financial Officer Mark Mason said on a conference call with journalists.
But overshadowing the trading bonanza are fears that inflation and efforts to tame it will stymie economic growth, even as banks benefit from interest-rate hikes that boost lending revenue. And while the crisis in Ukraine lifted volatility that benefited Wall Street's trading operations, it's also created geopolitical uncertainty likely to outlast the war itself, Goldman Chief Executive Officer David Solomon said during his bank's earnings call.
“Those are storm clouds on the horizon that may disappear, they may not,” JPMorgan CEO Jamie Dimon said after the bank reported its results this week. “I hope those things all disappear and go away, we have a soft landing and the war is resolved. I just wouldn't bet on all that.”
After initially seeing their share prices climb Thursday morning, the banks gave up some of those gains. Goldman rose as much as 3.4% before declining slightly by midday in New York. Morgan Stanley's shares were up 1.2% after increasing as much as 4.5%. Citigroup gained 3.5% earlier Thursday, and were up 1.4% by midday.
Read more: Goldman Traders Trample Estimates on Boom in Fixed-Income
The trading boom has been a source of relief for banks struggling to earn more from traditional lending operations, which have suffered from lukewarm demand and a prolonged period of low interest rates. After the pandemic erupted and the economy slumped, corporations rushed to raise money, fueling underwriting and bond trading amid share-price swings. With the pandemic receding, the expectation of aggressive Federal Reserve rate hikes and Russia's invasion have sustained the volatility.
The trading hauls also helped counter declines in investment-banking revenue as the market turmoil chilled the pace of deals. JPMorgan's investment-banking revenue fell to $2.1 billion, lower than the $2.3 billion analysts were expecting. Goldman's $2.13 billion in revenue from that division was below the average estimate of $2.28 billion.
Citigroup and Wells Fargo & Co., which also reported results Thursday, said consumers were in robust health. Still, Wells Fargo CEO Charlie Scharf expressed caution over the economic uncertainty, with his bank missing analysts' expectations for first-quarter revenue and expenses.
“Our internal indicators continue to point towards the strength of our customers' financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation, and this will certainly reduce economic growth,” Scharf said on a conference call. “The war in Ukraine adds additional risk.”
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