Big banks have been a bright spot in tough week for markets

MW Big banks have been a bright spot in tough week for markets

By Joy Wiltermuth

Major banks sailed through commercial real-estate updates in earnings and tapped the corporate bond market - with regional banks now on deck

America's biggest banks dominated corporate debt issuance in a rough week for financial markets.

New bond deals totaling about $28.5 billion were issued by four of the nation's six largest banks: JP Morgan Chase & Co. $(JPM)$, Wells Fargo & Co. $(WFC)$, Goldman Sachs Group Inc. $(GS)$ and Morgan Stanley $(MS)$, according to Kenneth Jacques, head of U.S. credit at Informa Global Markets.

Big banks tend to kick off earnings season in earnest each quarter, and then quickly barrage investors with a spate of new corporate bond offerings shortly after reporting results.

This week, however, the cadence has felt different - with investors monitoring the conflict between Israel and Iran, rates volatility and a spike in the Cboe Volatility Index VIX, known as Wall Street's "fear gauge."

"It's been touch and go," Tom Murphy, head of U.S. investment-grade credit at Columbia Threadneedle Investments, told MarketWatch.

Given the backdrop, banks have opted for a more staggered approach to issuing debt, instead of doing so all at once, Murphy said. "There's no rule saying you have to do a deal right after earnings," he noted.

Rates volatility has both U.S. investment-grade and high-yield "junk" bonds facing negative total returns in 2024 - to the tune of -2.3% and -0.3%, respectively, according to BofA Global.

Ugly intraday swings in the stock market and rising benchmark 10-year Treasury rates BX:TMUBMUSD10Y have yet to thwart high-quality U.S. companies from raising funds in the corporate bond market.

The following BondCliQ chart shows positive net buying in bonds issued by big U.S. banks in the first quarter.

Yet fresh warnings from the Federal Reserve about stalling inflation and potential delays to its plans to cut rates won't help banks saddled with commercial real-estate loans coming due.

And while America's biggest banks have only a small portion of their overall assets in commercial real-estate loans, that's not the case for many regional banks - and investors will closely watch those regional lenders' earnings reports for updates on how they're faring amid a downturn for the commercial real-estate sector.

Read: NYCB is expected to swing to a first-quarter loss next week after estimates have tumbled

Despite Green Street's commercial property-price index showing an estimated 21% drop in prices from peak levels, Rich Familetti, chief investment officer for U.S. total-return fixed income at SLC Management, said he sees stability and "no obvious signs of stress in most sectors of the corporate bond market," in emailed comments.

"I feel like we've taking the big six banks out of the realm of concern," Columbia Threadneedle's Murphy said. "Now, it's regional banks and how they've handled it."

Stocks were headed for weekly losses, with the Dow Jones Industrial Average DJIA off 0.1% for the week, the S&P 500 SPX down 2.7% and the Nasdaq Composite COMP 5% lower, according to FactSet.

-Joy Wiltermuth

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April 19, 2024 14:02 ET (18:02 GMT)

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