2023-07-18 16:40:59
Higher interest rates are a boon for lending-heavy banks, but more of a curse for investment banks with bond sales advice. That conclusion is suggested by Tuesday’s rather contrasting quarterly results from Bank of America (Bofa) and Morgan Stanley. Bofa said it made $7.4 billion in after-tax earnings this year from early April to late June, up 19 percent from the second quarter of 2022. The second-largest retail bank behind JP Morgan Chase, with 3,900 branches and 15,000 ATMs The USA benefited noticeably from the 14 percent increase in the surplus from interest on loans and deposits.
However, the risk provision is negative: Bofa had to double its provision for bad loans, and even triple it in the consumer business. The US economy, which has been stagnating this year, and an economic contraction that may still be looming on the horizon made themselves felt here. Bofa boss Brian Moynihan, however, spoke of a healthy economy with a still robust job market, in which the bank, which was founded in Los Angeles in 1923 and is now based in Charlotte (North Carolina), achieved one of its best quarterly results. It actually turned out a little better than expected – the Bofa share price then rose significantly by around 4 percent in trading on Tuesday.
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The CEO of Morgan Stanley, James P. Gorman, on the other hand, spoke of a challenging market environment in which the bank is currently moving. In the second quarter of 2023, Morgan Stanley earned $2.2 billion net, 12 percent less than in the same quarter of the previous year. In the capital markets business, which provides 40 percent of the total revenue of $13.5 billion, the interest business (fixed income) stood out negatively. Here, earnings fell by a whopping 32 percent to $1.7 billion. This is also significant from a German point of view, because interest trading is one of the most important business areas of Deutsche Bank, which will present its quarterly figures on July 26th.
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After the interest rate hikes of 5 percentage points in the USA since spring 2022, fewer companies are going to the market with new bonds – because it has become more expensive for borrowers and also because the Fed is also buying fewer bonds for new issues and thus a decrease in the years before reliable bond buyer fails. Companies that have no immediate need for borrowed capital are currently holding off on issuing new bonds. This reduces your need for advice on capital market transactions and thus an important source of income for investment banks.
Archibald Preuschat and Hanno Mußler Published/Updated: , Recommendations: 10 Hanno Mußler Published/Updated: , Recommendations: 49 Hanno Mußler Published/Updated: , Recommendations: 9
At the start of the US quarterly reports, the three banks JP Morgan, Citi and Wells Fargo presented business figures on Friday. The largest US bank JP Morgan increased its quarterly net profit by 67 percent to $14.5 billion, Wells Fargo by 58 percent to $4.9 billion. Citigroup, number three in the industry, was out of the ordinary with a 36 percent drop in profits to $2.9 billion. At Citi, however, interest rate trading was also a reason for the decline in profits, as earnings here fell by 13 percent.
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This Wednesday, the bank Goldman Sachs, which has long been accustomed to success, will present its quarterly figures. Analysts fear it could report the weakest result since David Solomon succeeded Lloyd Blankfein as CEO in October 2018.
A poor quarterly result would fit into the previous picture insofar as Goldman Sachs, unlike its competitor Morgan Stanley, has not yet succeeded in establishing a strong foothold alongside investment banking. At Morgan Stanley, highly profitable wealth management (gross profit in the second quarter: $2.2 billion) now provides 50 percent of revenues, investment banking only 40 percent. The analysts of the Swiss bank UBS then spoke in an initial reaction of surprisingly good quarterly figures from Morgan Stanley. After the quarterly figures were announced on the Tradegate trading platform, the share dipped briefly into the red. Then, with the opening of the American stock exchange, a clearly positive trend prevailed: the Morgan Stanley share price rose by more than 5 percent on Tuesday.
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Apparently, investors valued the strong result in asset management more than the weak result in rates. Incidentally, industry leader JP Morgan also reported 6 percent lower income in investment banking. So far, Bofa has been an exception here: it reported 7 percent higher earnings on Tuesday and is now number two in the global capital markets business after JP Morgan. Both JP Morgan and now Bank of America reported gaining market share in the second quarter of 2023.
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