Big banks bring the heatBank of America and Goldman Sachs manage to beat (some) estimates despite the bear market sending parts of their balance sheet scampering away in fear.
- Bank of America spiked 3.5% before paring those gains on Monday, after beating estimates for both revenue (up 5% YoY) and profit (down 32% YoY), saying that rising interest rates buoyed the results even as profits took a $425m hit from regulatory matters. Its CEO is confident in “continued strong deposit balances and spending levels” despite economic chaos.
- Goldman Sachs also managed to top estimates on both ends and earned a 6% intraday jump as a reward. Its profits followed the market trend and sank 48% while revenue dropped 23% thanks to declining investment banking revenue – numbers were helped by “significantly higher” trading activity in commodities and currencies.
- So, mixed results, but a few bright spots at least. The two banking giants are the last of six mega banks to report significantly weaker profits thanks to broad declines across financial assets, but both also seem confident in their ability to weather the downturn and said they didn't think a severe recession was on the way. Better than nothing, eh?
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Bank of America is a ballerBank of America’s first quarter has seen the dollars rolling in despite three months of crazy markets.
- BofA was up 3.4% on Monday after beating on both ends in Q1, though shares are still down nearly 6% this month. The bank reported EPS of $0.80 on revenues that were up a modest 1.8% at $23.33bn.
- Profits were down 12% but still beat estimates with $7.07bn thanks to the strong credit quality of its borrowers. Net loan charge-offs (when borrowers fall behind on payments) fell 52% to $392m, which is less than half of what analysts expected. Other big banks like JPMorgan reported much bigger profit declines of over 40%.
- Big bank stocks have been struggling this year as concerns grew that high inflation and the war in Ukraine will spark a recession, which could mean higher defaults, but CFO Alastair Borthwick said the better-than-expected earnings reflect the value of the brands “Responsible Growth” strategy.
Bank of America
BofA's big quarterBank of America earns a gold star sticker for its Q4 earnings report, but a worrying market forgets to give it due praise.
- The stock opened up nearly 5% on Wednesday morning, but lost momentum (along with most of the market) to close up only 0.4%
- It topped earnings expectations with EPS of $0.82 compared to the $0.76 analysts expected. Though revenue of $22.17bn was up 10%, it just missed forecasts for $22.2bn.
- Profit was the star of the show, up 28% to hit $7.01bn from $5.47bn this time last year, thanks to record revenues from its wealth management and investment banking division.
- Like its other banking brother, the company faced higher expenses thanks to having to pay higher wages for its employees – others like Goldman Sachs (GS) didn’t cope as well with the costs.
- Its trading revenue wasn’t as lucky, seeing a 2% decrease as the trading frenzy of earlier in the year faded in a big way.
- Big banks tend to do better in high-interest environments, so BofA is expecting another profitable year as the Fed seems set to execute four rate hikes.
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