More big bank earnings today–and, fortunately, they were a mixed bag. Which made them markedly better than Friday’s results.
Bank of America’s (BAC)’s second-quarter earnings per share rose 12% to 46 cents, beating by 3 cents a share. Revenue climbed 7% to $22.8 billion against the Wall Street consensus of $21.915 billion. Shares of Bank of America closed up 0.5% today, July 18.
Goldman Sachs (GS) managed to meet lowered expectations by reporting earnings of $3.95 a share, above projections for a drop in earnings to $3.51 a share. For the second quarter of 2016 Goldman reported earnings of $3.72 a share. Revenue came in at $7.89 billion, an increase of 0.6% year over year. Shares of Goldman fell 2.6% on the day.
The Financial Select Sector SPDR ETF (XLF) closed down 0.16% for the session. The Standard & Poor’s 500 gained a piddling 0.06%.
Guidance in the two bank’s conference calls poked at Wall Street fears about the financial sector. Net interest income at Bank of America, for example, was just 2.34%. That was low enough to remind traders and investors that they’re worried that very slow increases in interest rates from the Federal Reserve will depress bank profits. (Banks make more money as interest rates rise and the yield curve gets steeper since they borrow at the short end of the curve and lend at the long end.)
Fixed-income, currency and commodities trading revenue at Goldman Sachs plunged 40% to $1.159 billion as low levels of volatility depressed trading. That too echoed a theme from last week’s earnings from JPMorgan Chase (JPM) and Citigroup (C).
One problem for the sector for the quarter ahead is that bank stocks are looking at tough comparisons with the third quarter of 2016. Banks with big trading operations such as JPMorgan reported very strong trading revenue in the third quarter of 2016 and that will make it hard for banks to post year on year increases in earnings in the upcoming quarter, unless the trading environment improves rapidly, which no one expects.
For retail oriented banks such as Bank of America the direction of earnings results for the remainder of 2017 will depend on the pace of interest rate increases from the Federal Reserve. That too isn’t looking all that promising at the moment. The CME’s Fed Watch tool showed the odds of a rate increase at the central bank’s December 13 meeting dropping to 47.3% today from 48.3% yesterday.
Morgan Stanley (MS), the last of the very biggest banks to report, delivers second quarter results tomorrow.