Illustration of "Big Banks Beat Expectations in Latest Quarter"

“Big Banks Beat Expectations in Latest Quarter”

Another round of big bank earnings has arrived, wrapping up the second-quarter reports for six major U.S. banks, which have largely surpassed Wall Street estimates, demonstrating their continued resilience.

In the investment banking sector, both Goldman Sachs and Morgan Stanley experienced robust second-quarter performances, fueled by a surge in investment banking activities. Factors contributing to this include a more optimistic economic outlook, increasing certainty around interest rate cuts, and strong market conditions.

The U.S. mergers and acquisitions market recorded 551 large deals valued at a minimum of $100 million each, totaling $758 billion through May, according to consulting firm EY. This reflects an 18.5% increase from the previous year, resulting in significant benefits for the banks facilitating these transactions.

Although Bank of America, the second-largest U.S. bank by assets and a key indicator of consumer health, reported a profit decline for the quarter, there were still positive signs for investors.

Bank of America reported strong second-quarter earnings, surpassing Wall Street estimates and providing positive guidance for net interest income (NII). The bank’s NII was $13.7 billion in the second quarter, a 3% decrease from $13.83 billion in the same period last year. However, the bank’s management indicated that the metric had already reached its lowest point for the year and raised the guidance to $14.5 billion, expecting continued growth in the latter half of 2024.

Bank of America generated $25.4 billion in revenue, slightly up from $25.2 billion in the same quarter last year, surpassing analysts’ revenue estimates of $25.22 billion. Despite a nearly 7% decline in net income to $6.9 billion from $7.4 billion the previous year, profits exceeded Wall Street’s forecast of $6.41 billion.

Morgan Stanley reported a 41% increase in second-quarter profits from the previous year, reaching $3.08 billion, or $1.82 per share, exceeding analyst projections of $2.67 billion, or $1.65 per share. Revenue increased 12% to $15.02 billion, driven by its wealth management and institutional securities divisions. The firm’s shares rose more than 2% following the earnings announcement.

Mike Taiano, vice president of Moody’s Ratings Financial Institutions Group, attributed Morgan Stanley’s strong results to a sector-wide rebound in investment banking activity, with wealth and asset management remaining steady due to a robust equities market despite weaker net interest income. The bank’s investment banking revenues surged by 51% from the previous year to $1.62 billion, boosted by increased M&A activity and growth in fixed income.

Goldman Sachs reported a 150% year-over-year increase in second-quarter profit to $3.04 billion, or $8.62 per share, driven by impressive performances in its global banking & markets and asset & wealth management segments. The firm’s revenue rose 17% to $12.73 billion, surpassing Wall Street estimates by nearly $300 million. Goldman’s fixed income revenue also grew by 17% to $3.18 billion for the quarter. Shares of the investment bank rose 2% on Monday and saw a further 3% increase in Tuesday morning trading.

David Fanger, senior vice president in Moody’s Ratings Financial Institutions Group, noted that Goldman Sachs appears to be on a positive trajectory following several strategic changes, which is encouraging for investors and clients.

Despite the resurgence, Goldman Sachs CEO David Solomon highlighted in a call with analysts that certain transaction volumes still remain well below 10-year averages. However, he emphasized that the bank is “well-positioned to benefit from a continued resurgence in activity.”

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