Morgan Stanley profits fall on dealmaking slump while rising rates lift Bank of America
The continued lull in dealmaking hit Morgan Stanley’s profit despite a strong performance from its wealth management arm, while rising rates lifted Bank of America.
Income at Morgan Stanley, which specialises in investment banking, slipped to $2.2bn in the second quarter, down from $2.5bn the year before but in line with analyst expectations.
This fall reflected the persistent lull in dealmaking due to the challenging economic backdrop as well as an increase in compensation costs relating to employee severance packages.
This caused revenue from the institutional securities arm, which houses Morgan Stanley’s investment banking and trading businesses, to fall eight per cent per cent to $5.5bn.
Although investment banking revenue remained fairly consistent, its trading revenue slumped as a result of lower market volatility compared to last year. Equities revenue was down 14 per cent while fixed income was down 31 per cent.
Morgan Stanley’s wealth management arm performed strongly, increasing revenue 16 per cent to $6.7bn largely thanks to rising interest rates. The bank has been attempting to enhance its wealth management offering to diversify its revenue streams.
Analysts at UBS said Morgan Stanley’s performance was “surprisingly solid in (a) challenging environment”.
Chair and chief executive James Gorman said: “The firm delivered solid results in a challenging market environment. The quarter started with macroeconomic uncertainties and subdued client activity, but ended with a more constructive tone.”
Bank of America
Bank of America also announced quarterly earnings today, beating expectations as it became the latest US bank to be lifted by rising interest rates.
Chair and CEO Brian Moynihan said: “We delivered one of the strongest quarters and first half net income periods in the company’s history.”
Profit climbed 19 per cent to $7.4bn, or $0.88 per share. This was higher than analysts had predicted. The increase came primarily thanks to a 14 per cent rise in net interest income.
But analysts at UBS warned that Bank of America’s interest margin might lead to worse performances over the rest of the year. “While the 2Q23 NII print was perhaps better than feared, the net interest margin (NIM) of 2.06 per cent was worse than consensus of 2.12 per cent, potentially setting the stage for downward revisions” over the next two quarters.
At the end of last week, JP Morgan and Wells Fargo both reported significant increases in profit on the back of rising rates. Higher interest rates enable banks to earn more net interest income, the difference between what they pay out and receive in interest payments.
However, reflecting concerns of an impending recession, Bank of America set aside $1.1bn for bad loans, up from $500m in the same period last year.
The increase in provisions stymied performance in consumer banking, where income slipped one per cent year on year.
This was more than offset by a 76 per cent increase in the global banking division to $2.7bn, reflecting higher interest income and higher leasing revenue.
Goldman Sachs will release tomorrow.