What happened
Shares of several large bank stocks based in the U.S. struggled today, as broader markets continued to be impacted by Russia's ongoing invasion of Ukraine, which is leading to a number of larger economic implications.
Shares of JPMorgan Chase (JPM 2.51%) traded roughly 5.3% down as of 1:37 p.m. ET today. Shares of Bank of America (BAC 3.35%) traded 4.8% down and shares of Wells Fargo (WFC 2.74%) traded nearly 6% down.
So what
Banks like JPMorgan, Bank of America, and Wells Fargo each have trillions of dollars of assets and broad exposure to the global economy, so when big events like what is going on in Ukraine occur, it is hard for banks not to feel at least some impact.
Most large U.S. bank stocks are not believed to have too much direct exposure in Russia, but the sanctions being imposed on the country may hurt financial institutions in Europe, which can then spill over to the U.S. because of how interconnected all of these banks are.
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"It's the correspondent banking relations through Europe, that do quite a bit of loan activity -- Italian banks, French banks, Austrian -- with Russia," Ken Leon, director of equity research at CFRA Research, told CNBC.
Furthermore, there is now concern among analysts that U.S. banks may have more exposure to Russia than they are letting on. Citigroup reported yesterday that its exposure to Russia amounted to $10 billion, which is close to double the amount Citigroup reported in its quarterly filing for the period ending last September.
J.P. Morgan analyst Kian Abouhossein wrote in a research note that "transparency on exposure by banks to Russia is low," for the most part.
"Most banks do not give net exposures, and do not provide granularity around the gross exposures," Abouhossein added. The analyst also noted other uncertainties regarding U.S. bank exposure in Russia including derivatives exposure in the country and how sanctions may hurt various payments businesses U.S. banks operate in Russia.
Still, the overall exposure is estimated to be low, according to Reuters. U.S. banks have thus far disclosed nearly $15 billion of exposure in Russia, compared to $42.5 billion for Italian, French, and Austrian banks.
In other economic news, U.S. oil prices earlier today jumped to $106 a barrel, the highest level seen in seven years as investors worry that the ongoing Russia-Ukraine battle could further impact supply.
This could intensify inflation that has already surged over the past several months. Banks are generally seen as a hedge against inflation because inflation tends to lead to higher interest rates, which tends to boost most bank profits. But too much inflation can slow consumer demand and increase loan losses, which is bad for banks.
The yield on the U.S. 10-year Treasury has also been falling today. This yield tends to be a key benchmark for bank stocks because many bank loan yields such as mortgages and commercial loan rates are tied to the yield on the 10-year and other long-term Treasury rates, which often move similarly.
Now what
It's certainly something to keep an eye on, but I am not overly concerned about direct U.S. bank exposure in Russia. Even Citigroup's $10 billion is really not a lot when you consider the bank has $2.29 trillion in assets.
I am much more concerned about broader implications the Russian invasion may have on the economy including higher oil prices and its impact on inflation, as well as other impacts from the sinking ruble and rising interest rates at the Russian central bank.
Ultimately, though, U.S. banks like JPMorgan Chase, Bank of America, and Wells Fargo are in good shape and have very strong balance sheets. The uncertainty is not great right now with everything else going on, but long-term all of these stocks should be fine.
