The losses suffered by Russia detailed by Wall Street banks, who have warned of increased volatility

This week, Wall Street banks detailed billions of dollars in potential losses from the war in Ukraine, while also warning that the market turbulence unleashed by the Russian invasion has no end in sight.

Analysts and executives in the industry described the losses as manageable, but they were concerned about the possibility of spillover effects similar to those that led to the cancellation of some nickel trades on the London Metal Exchange last month.

"I cannot foresee any scenario at all where you’re not going to have a lot of volatility in markets," JPMorgan Chase CEO Jamie Dimon said during his bank's first-quarter earnings report.

Traders will have to navigate new political terrain, according to David Solomon of Goldman Sachs. "The Russian invasion has further complicated the geopolitical landscape and created an additional level of uncertainty that I expect will outlast the war itself."

Citigroup, which was attempting to sell its Russian retail operations at the time the war broke out, was hit the hardest by the conflict. It estimated that it could lose $2.5 billion to $3 billion, and set aside $1 billion in loan-loss reserves as a precaution.

The question of whether the bank will be able to sell its Russian holdings while the US and other western governments impose harsh sanctions in response to Vladimir Putin's invasion of Ukraine has complicated estimating losses at the bank.

"This is a fluid situation and the ability to exit those businesses is really going to hinge on how the environment plays out," Citi chief financial officer Mark Mason said.

JPMorgan said it had set aside $300 million to cover markdowns on Russian-related loans. It also attributed $120 million of a $524 million trading loss during the quarter to its role as one of the counterparties in a disastrous short trade by Chinese metals group Tsingshan during the market turmoil that followed the outbreak of war.

Dimon said the bank would look into what it could have done differently to handle the situation, as well as the LME's role, which has been chastised for canceling several hours of trading.

Goldman, which disclosed its $650 million Russian exposure in February, said it had lost about $300 million on investments in Russia and Ukraine.

In a conference call with analysts, Solomon said, "our positions were relatively limited, but we’ve been focused on closing them out and reducing our exposure."

After giving up its banking license in Russia years before the invasion, Morgan Stanley said it had "limited" direct exposure to Russia.

"The second-order volatility in the marketplace I cannot predict," Sharon Yeshaya, chief financial officer, told the Financial Times.

"[But] we are always subject to it and we’ll all have to deal with that."

The losses reported by US banks are minor in comparison to their earnings, confirming the view held by many investment analysts at the outset of the Ukraine conflict that they faced less risk than their European counterparts.

Citi's $1 billion in provisions represented about 5% of revenues in the quarter, while Goldman's $300 million in losses represented about 2% of revenues. JPMorgan's provisions amounted to less than 1% of revenue.

"The more meaningful Russia issue for banks is not their direct exposure, but the potential for commodity market disruption to precipitate a recession," said Eric Hagemann, senior research analyst at Pzena Investment Management. "High gas prices may push credit card default rates higher, particularly at the lower end of the income spectrum, but that has yet to show up in anyone’s reported numbers."

The Russian invasion had an impact on investment banking as well, with activity, particularly in equity underwriting, slowing. Citi's investment banking revenue dropped 43%, Morgan Stanley's fell 37%, Goldman's fell 36%, and JPMorgan's revenue dropped 32%.

"Heightened [market] volatility led to clients to delay issuance activity," Yeshaya explained.

The blow was softened by better-than-expected results at the big banks' trading arms, which profited from increased client activity in response to volatile commodity prices and the Federal Reserve's rate hike.

"The big story this quarter was trading revenues, which more or less bailed out the banks, because investment banking revenues were really weak across the board," said Edward Jones analyst James Shanahan.

Goldman Sachs' trading division saw revenues rise 4% to $7.87 billion, remaining above pre-pandemic levels and well ahead of analysts' expectations of $5.86 billion. Trading revenues for fixed income, currencies, and commodities totaled $4.7 billion, far exceeding expectations of $3.1 billion.

In a note, bank analysts at Oppenheimer wrote, "We suspected that [Goldman’s] commodities business might lead to an upside surprise, but we significantly underestimated the magnitude of this,"

Morgan Stanley's trading revenues increased 1% to $6 billion in the first quarter of 2021, beating expectations of $4.84 billion. Fixed-income trading revenues were $2.9 billion, compared to $2.1 billion expected, while equities income was $3.1 billion, compared to $2.59 billion expected.

Trading revenue at Citi fell 2% year over year to $5.8 billion. Mason told reporters, "Obviously, the Russia-Ukraine war drove significant volatility in [foreign exchange] markets. We were able to take advantage of that and we were well-positioned to do so in commodities. "

Trading revenues at JPMorgan Chase fell 3% to $8.75 billion.