Three of the nation’s four largest banks reported earnings covering the final quarter of 2021. 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. The Federal Reserve hasn’t done anything with interest rates yet.

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 said.

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. JPMorgan Chase saw a 16% year-over-year decline in its FICC business. The good times for trading appear to be fading with Fed normalization nearing.

During the quarter, the Fed began signaling that it could more quickly pullback its pandemic-era policies (of near-zero rates and asset purchases). Citigroup saw a 16% decrease. The Fed is now signaling it could pullback more quickly from its policies.
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