The main Swiss banks may be able to skirt around much of the U.S. bank’s post-COVID drop in earnings – for now.

Regardless of how you look at it, J.P. Morgan is one of the world’s largest banks. It is generally considered a bellwether for U.S. finance, financial markets, and the global investment banking sector.

And its earnings, released yesterday, must have given the mainline Swiss banks some food for thought. Although the glaring headline was its net profit figure drop of almost 60 percent drop in first-quarter 2022 from the same period a year earlier, along with a 30 percent drop from the end of 2021, both were largely explainable by the expected post-pandemic clime down, the Ukraine War, and high inflation.

But beneath the headline figure, revenue in the first three months of the year was surprisingly stable. It was only down 5 percent from a year earlier and was even up 5 percent from the fourth quarter.

Similar But Not Identical

In the shorter term, the Swiss banks may be able to avoid the brunt of that impact. Although UBS and Credit Suisse are in many of the same or similar businesses that J.P. Morgan is in, they are not identical - and the devil is in the detail.

The U.S. bank’s performance was heavily influenced by a large $1.5 billion provision for credit losses. It prudently added $902 million to reserves because of a higher probability of «downside risks», or market and banker speak for «bad things happen». The Swiss banks can do something similar, but they do not necessarily have to.

And much of the increase in provisions came in the American bank’s retail and commercial businesses, something the Swiss banks are little exposed to, if at all.

Moderated Investment Banking Decline

The picture even seems to speak in the Swiss banks’ favor when you look at the investment banking business. J.P. Morgan seemed to show a far more moderated decline in the businesses all three directly compete in.

Fixed income revenues were only down 1 percent year-on-year, and the bank even reported a rise in currencies revenue. Equity markets were down 7 percent, but that was almost a natural takeoff point from the very strong markets a year ago.

J.P. Morgan did report a $524 million loss due to credit adjustments, although this was a result of wider funding spreads, and adjustments related to commodities exposure increases and derivative markdowns from counter-parties associated with Russia. UBS and Credit Suisse may face similar, but it is not likely to be on the same scale.

Moreover, as Jens Hass, the head of Investment Banking at Credit Suisse, recently indicated in an interview with finews.com, the slowdown in investment banking activity was most pronounced in the U.S. where the result has to be looked at in the context of the record environment a year earlier. In Europe, activity also declined, but the number of M&A deals only fell 3 percent.

The Real Bellwether

But the American bank’s asset and wealth management is probably the real bellwether for the largest Swiss banks, and possibly for much of the finance sector.

Here the picture is far more positive. J.P. Morgan reported higher management and performance fees while assets under management rose 4 percent to $3 trillion, ostensibly driven by «cumulative net inflows».

That is more than likely to set the scene for a positive UBS net new fee-generating asset performance as well as Credit Suisse’s net new assets number - and possibly for net new money throughout the domestic financial sector.

Now For Some Bad News

Although that is likely to be the case for this quarter, it will be harder to avoid J.P. Morgan’s fate entirely in the longer term.

Jamie Dimon, the bank’s long-tenured Chairman and CEO, put out an outlook that was seen as extremely blunt by some when he said the bank saw «significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine».

Over time, those kinds of issues are likely going to pose the same kinds of problems for Swiss banks, even in wealth and asset management, where the impact of significantly negative – and positive – developments tend to significantly lag that of retail, commercial, and investment banking.