Illustration of "Big Banks Surpass Expectations: An Inside Look at Q2 Earnings Growth"

“Big Banks Surpass Expectations: An Inside Look at Q2 Earnings Growth”

Another round of big bank earnings has arrived, concluding the second-quarter reports of six major U.S. banks and demonstrating their resilience as they continue to beat Wall Street estimates.

Investment banking giants Goldman Sachs and Morgan Stanley both saw their second-quarter performances boosted by an industry-wide boom in investment banking. This surge was driven by a more optimistic economic outlook, increasing certainty around interest rate cuts, and strong market performance, which have revived Wall Street activity.

The U.S. M&A market experienced significant growth, with 551 large deals worth at least $100 million each, totaling $758 billion through May, according to consulting firm EY. This represents an 18.5% year-over-year increase, creating substantial profits for banks involved in advising these transactions.

Bank of America, the second-largest U.S. bank by assets and a key indicator of consumer health, gave investors several positive signals despite a decline in quarterly profits.

Bank of America had a solid second-quarter performance, beating Wall Street estimates and providing upbeat guidance for net interest income (NII). Given its large consumer banking business, Bank of America is highly sensitive to NII, which is the difference 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 in the same period last year. However, the bank’s management indicated that the metric had likely bottomed out for the year. They raised guidance to $14.5 billion, expecting continued increases in the latter half of 2024.

The firm reported $25.4 billion in revenue, slightly up from $25.2 billion during the same quarter last year, surpassing analysts’ estimates of $25.22 billion. Despite a nearly 7% drop in net income to $6.9 billion from $7.4 billion a year earlier, profits exceeded Wall Street’s projected $6.41 billion.

Morgan Stanley’s second-quarter profits surged 41% from a year earlier to $3.08 billion, or $1.82 per share, surpassing analyst estimates of $2.67 billion, or $1.65 per share. Revenue increased 12% to $15.02 billion, supported by its wealth management and institutional securities businesses. Following the results, shares of the investment bank rose over 2%.

Mike Taiano, a vice president of Moody’s Ratings Financial Institutions Group, attributed Morgan Stanley’s strong second-quarter results to an industry-wide rebound in investment banking activity, with steady contributions from wealth and asset management sectors against a robust equities market backdrop.

Morgan Stanley’s investment banking revenues rose 51% from the year-earlier period to $1.62 billion, driven by higher advisory inflows due to increased M&A activity and fixed income growth.

Goldman Sachs experienced a massive profit surge in the second quarter, with a 150% year-over-year increase 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 a 17% revenue rise to $12.73 billion, topping Wall Street estimates by nearly $300 million. Fixed income also saw significant growth, jumping 17% to $3.18 billion for the quarter.

Goldman Sachs’s shares climbed 2% on Monday, with an additional 3% gain in Tuesday morning trading. David Fanger, senior vice president in Moody’s Ratings Financial Institutions Group, noted that the investment bank’s performance seems to be on the right track following foundational changes — a positive sign for both investors and clients.

Despite the rebound, CEO David Solomon mentioned that some transaction volumes remain well below 10-year averages. However, he expressed confidence that the bank is well-positioned to benefit from a continued resurgence in activity.

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