Morgan Stanley, Goldman Sachs, and Bank of America reported their first-quarter earnings to start off a new week.
All the banks beat analysts’ estimates as they double down on their strategies amid a pretty hospitable banking environment. But the quarter wasn’t without its hiccups, including blows to profits in an effort to cover bad loanss, probes from federal regulators, and costs associated with new, streamlining strategies.
Here’s what you need to know.
Bank of America’s profits plunge
While Bank of America largely topped analysts’ estimates, its profits plunged 18% in the first quarter compared with a year earlier. The bank posted a net income of $7.2 billion, or $0.83 per share (excluding costs tied to the Federal Deposit Insurance Commission’s special assessment), breezing past the $0.76 estimate compiled by FactSet.
It saw $25.8 billion in total revenues, compared with the $25.49 billion expected by analysts.
One reason for the dent in Bank of America’s profits was the 40% increase in its provision for credit losses — how much it sets aside to cover any loans gone awry — which grew to $1.3 billion in the first quarter 2024, from $931 million in the same period last year.
Of the three banks that reported earnings this week so far, Bank of America is the most client-facing. It added roughly 245,000 net new checking accounts in the quarter, bringing it to a record 36.9 million consumer checking accounts and marking 21 consecutive quarters of checking account growth.
Despite posting a solid net interest income (NII) of $14 billion — down just 3% from $14.45 billion a year ago — the bank, like others, is bracing for a continued drop in NII for 2024 as interest rates and funding costs remain elevated.
Bank of America stock was down 4.1% shortly after markets opened Tuesday.
Morgan Stanley gets a wealth management bump, and new CEO Ted Pick addresses regulatory scrutiny
Morgan Stanley reported net revenues of $15.1 billion for the first quarter, up 4% from $14.5 billion a year ago. Morgan Stanley’s revenues outperformed in key areas, including wealth management, equities trading, and investment banking, but fell short in investment management — its smallest unit.
The company’s profits rose 14% year-over-year to $3.4 billion, from $3 billion a year ago. The investment bank topped analysts’ estimates, bringing in $1.70 per share, compared with an estimated EPS of $1.67, according to data compiled by FactSet.
“As a result of strong net new asset growth, the Firm has reached $7 trillion of client assets across Wealth and Investment Management,” newly minted CEO Ted Pick said in the earnings report. Pick was selected to lead Morgan Stanley last October after a lengthy search for a successor to the investment bank’s long-serving chief, James Gorman.
Net new assets grew by $95 billion in the quarter, as the investment bank moves towards a $10 trillion client asset goal, Pick said in a call with analysts Tuesday morning. He pointed to higher assets and an improved economic backdrop as main drivers behind the success of its wealth management division during the quarter.
In the call with analysts, Pick addressed reports that the investment bank’s wealth management arm is being probed by federal regulators over whether it’s doing its due diligence in assessing clients, their financial activity, and the origins of their wealth. He said it’s “not a new matter” and that Morgan Stanley has ongoing communications with regulators, as do other banks.
“To be clear, this is about processes,” he said. “We have been spending time, effort, and money for multiple years, and it is ongoing. We’ve been on it. And the costs associated with this are largely in the expense run rate.”
Morgan Stanley stock was up 3.4%.
Goldman Sachs sees the rewards of its narrowing focus
Goldman Sachs saw a strong first quarter, with the reopening of capital markets giving the investment bank a widespread boost, the company said Monday.
Net revenues were $14.21 billion for the first quarter of 2024, up 16% from $12.22 billion in the first quarter of 2023 and topping analysts’ estimated $12.48 billion in revenues, according to data compiled by FactSet. These results were driven by record — or near-record — performance in its investment banking and equities divisions.
Net earnings were up 28% to $4.13 billion, coming in at $11.58 per share, beating Wall Street’s expected $8.32 per share, according to estimates compiled by FactSet. This compares with a profit of $3.23 billion during the same period last year.
Profits were helped by the fact that, despite the surge in revenues, Goldman’s operating expenses grew just 3% year-over-year. The investment bank’s net provisions for litigation and regulatory proceedings were just $23 million for the first quarter of 2024, roughly one-third of what they were a year earlier. Goldman also reduced its headcount by 2% following the sale of home lending firm, GreenSky, last October.
The sale was part and parcel of the bank’s efforts to move away from consumer banking and enhance two of its core offerings: Global Banking & Markets and Asset & Wealth Management. Although the sale resulted in a $506 million loss for the investment bank in 2023, Solomon said the reopening of capital markets and business opportunities in Goldman’s core areas mark the beginning of a turnaround for the bank.
“This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths,” Goldman Sachs CEO David Solomon said in the earnings report.
Goldman Sachs stock was largely flat Tuesday after rising following its earnings report Monday.
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