Wall Street Rewards Bank of America, Morgan Stanley and Citi, While Wells Fargo Shares Fall

Morgan Stanley, Wells Fargo, Citigroup and Bank of America all posted stronger-than-expected gains on Thursday, with the financial sector continuing to benefit from increased economic activity as the impact of the COVID 19 pandemic began to diminish.

Morgan Stanley MS,
+2.45%
delivered the cleanest pace as its investment banking and wealth management units benefited from a surge in wealth from its high net worth clients and a flurry of capital raising and mergers and acquisitions on Wall Street. The bank also received a boost from its acquisitions of asset manager Eaton Vance and online broker ETrade, which were completed in March and Q4 2020 respectively.

In comparison, Wells Fargo & Co.’s earnings. WFC,
-2.20%,
Citigroup Inc. c,
+0.49%
and Bank of America Corp. BAC,
+4.28%
benefited from the release of loan loss reserves as they sought to address credit growth as a key measure of their lending activities.

Shares of Morgan Stanley were up 2.4%, Citi added 0.7%, Wells Fargo fell 1.2% and Bank of America was up 4% in Thursday afternoon trading.

Morgan Stanley Investment Banking Income Boosts Results

Morgan Stanley’s third quarter net income rose to $3.7 billion or $1.98 per share, from $2.7 billion or $1.66 per share in the same period a year ago. Revenue rose to $14.8 billion from $11.7 billion a year ago.

Analysts expected the investment bank to earn $1.69 per share on revenue of $13.93 billion.

Chairman and CEO James P. Gorman said Morgan Stanley delivered “another very strong quarter, with robust revenues and improved efficiency,” delivering a return on average tangible ordinary equity (ROTCE) of 20%, highlighted by its ” outstanding performance” in its investment bank and a record $135 billion in new assets in wealth management.

The company’s investment banking revenues rose about 68% to $2.85 billion, from $1.7 billion. Before Thursday’s earnings, the stock was up 43.8% this year, compared to a 16.2% rise by the S&P 500 index. spx,
+1.57%

Citigroup profit rises after breaking reserve boost

Citigroup’s net income increased 48% to $4.6 billion, or $2.15 per share, from $3.1 billion or $1.36 per share in the year-ago quarter. Sales declined 1% to $17.2 billion, including a pre-tax loss of approximately $680 million from the sale of the Australian consumer division. Excluding this item, turnover increased by 3% due to the growth of the institutional clients unit.

The bank released $1.1 billion in loan loss reserves. Net interest income declined 3% to $1.85 billion from $1.91 billion.

Analysts expected Citi to earn $1.71 a share on revenue of $16.98 billion, according to a study by FactSet.

Citigroup said its loan portfolio remained stable at $665 billion, but declined 1% excluding the impact of currency translation, mainly due to the impact of the sale of its consumer business in Australia.

The bank’s deposits rose 7% to $1.3 trillion.

Before Thursday’s trading, shares of Citigroup were up 14% this year, compared to a 16.2% rise by the S&P 500.

Bank of America grows profit by 57%

Bank of America’s third quarter earnings rose to $7.7 billion, or 85 cents per share, from $4.9 billion or 51 cents per share in the same period a year ago. Revenue increased from $20.3 billion to $22.8 billion. Net interest income rose 10% to $11.1 billion.

The bank released $1.1 billion in reserves for its operating results, primarily driven by asset quality improvements.

An analyst survey by FactSet estimated earnings at 71 cents per share on revenue of $21.68 billion and net interest income of $10.6 billion.

CEO Brian Moynihan said banking results were “strong” as the economy continued to improve and companies regained the momentum of organic customer growth from pre-pandemic.

In the third quarter, total loans and leases fell from $949 billion to $908 billion. Total consumer deposits rose 15% to $1.94 trillion. Consumer banking deposits rose 16% to $1 trillion.

Before Thursday’s transactions, Bank of America shares rose 42.3% in 2021.

Wells Fargo profit rises but turnover falls

The net profit of Wells Fargo & Co. rose to $5.12 billion, or $1.17 per share, in the third quarter, compared to $3.22 billion or 70 cents per share in the same period a year earlier. Revenue fell to $18.834 billion from $19.316 billion.

FactSet’s consensus was earnings per share of $1.00 and revenue of $18.273 billion.

The bank said it released $1.7 billion from its loan loss reserve, equivalent to a 30-cent increase in EPS.

It also charged $250 million, or 5 cents per share, for an enforcement action taken by the Office of the Comptroller of the Currency regarding unsound home loan practices.

The bank said average loans fell to $854.0 billion from $931.7 billion a year ago. Average deposits rose from $1.40 trillion to $1.45 trillion.

“Depreciation and amortization were low, net interest income stabilized and end-of-period loans grew for the first time since the first quarter of 2020,” CEO Charlie Scharf said in a statement.

Net interest income fell to $8.91 billion from $9.38 billion a year ago, due to lower loan balances. Noninterest income decreased from $9.94 billion to $9.93 billion from $9.94 billion, as better private equity and venture capital results and higher card, deposit-related and investment banking costs were offset by lower mortgage banking income, lower gains on the sale of securities and lower markets profits.

In the bank’s retail operations, home loans fell from $2.53 billion to $2.01 billion.

“The decline in mortgage banking revenues was primarily due to lower profits on sales margins and lower manufacturing, as well as a decline in service charges, partially offset by higher profits from the re-securitisation of loans we purchased from mortgage-backed securities last year. ‘ said the bank.

Steven Check, CIO and founder of investment advisor Check Capital Management, said he remains optimistic about Wells Fargo despite its stock performance against its competitors.

The stock is trading only about $2 or $3 above its book value of $42.50 a share — much lower than other major banks. It is also positioned to take advantage of any interest rate hikes with its major consumer banking business, he added, noting that the company continues to work to change its regulatory issues.

“It’s going in the right direction,” Check said. “Their write-offs are extremely low and their costs continue to fall.”

Shares were up 53% in the year so far, ahead of Thursday’s action.

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