Another round of big bank earnings has arrived, marking the end of second-quarter reports for six major U.S. banks. These reports show that the banks remain resilient, continually exceeding Wall Street estimates.
Investment banking giants Goldman Sachs and Morgan Stanley both experienced strong second-quarter performances, benefiting from an industry-wide boom in investment banking. This surge was driven by an improved economic outlook, increased certainty around interest rate cuts, and robust markets, which have revitalized Wall Street activity.
The U.S. M&A market saw 551 major deals, each worth at least $100 million, totaling $758 billion through May, according to consulting firm EY. This is an 18.5% increase year-over-year, leading to significant gains for banks involved in these transactions.
Bank of America, the second-largest U.S. bank by assets and a key indicator of consumer health, provided several positive signals to investors despite a decline in quarterly profits.
Highlights include:
Bank of America’s net interest income (NII) outlook
Bank of America had a strong second-quarter performance, exceeding Wall Street estimates and offering optimistic guidance for NII. Given its large consumer banking operations, Bank of America is highly sensitive to NII — the gap between the interest banks earn on loans and investments and the interest they pay to depositors.
In the second quarter, Bank of America’s NII was $13.7 billion, a 3% decrease from $13.83 billion the previous year. However, the bank’s management indicated that NII had bottomed out for the year and raised guidance to $14.5 billion, expecting further increases in the latter half of 2024.
The bank reported $25.4 billion in revenue, up slightly from $25.2 billion in the same quarter last year, surpassing analysts’ revenue estimates of $25.22 billion, according to data from FactSet. However, net income dropped nearly 7% to $6.9 billion from $7.4 billion a year earlier, although this still exceeded Wall Street’s projected $6.41 billion.
Morgan Stanley sees a Wall Street rebound
Morgan Stanley’s second-quarter profits surged 41% from a year earlier, reaching $3.08 billion, or $1.82 per share. This was well above analyst estimates of $2.67 billion, or $1.65 per share.
Revenue rose 12% to $15.02 billion, driven by its wealth management and institutional securities businesses. Shares of the investment bank increased by more than 2% following the results.
David Fanger, a senior vice president of Moody’s Ratings Financial Institutions Group, said Morgan Stanley’s strong second-quarter results were “aided by an industry-wide rebound in investment banking activity” while wealth and asset management continued to be steady contributors in a strong equities market, despite lower NII.
Morgan Stanley’s investment banking revenues rose 51% from the year-earlier period to $1.62 billion, with higher advisory inflows from increased M&A activity and fixed income growth.
Goldman Sachs sees a massive jump in profits
Goldman Sachs saw second-quarter profit rise 150% year-over-year to $3.04 billion, or $8.62 per share, driven by strong performance in its global banking & markets and asset & wealth management divisions. The firm reported its earnings early Monday.
Goldman’s revenue increased by 17% to $12.73 billion, surpassing Wall Street estimates by almost $300 million. Fixed income also showed strong results, jumping 17% to $3.18 billion for the quarter.
Shares of Goldman Sachs climbed 2% on Monday and saw an additional 3% gain in Tuesday morning trading. Moody’s Fanger noted that Goldman’s performance appears to be on the right track after several foundational changes.
CEO David Solomon mentioned during a call with analysts that certain transaction volumes remain below 10-year averages, but he expressed confidence that the bank is well-positioned to benefit from a continued resurgence in activity.