Morgan Stanley (MS) and Bank of America (BAC) reported first-quarter profits, with sales and bottom lines exceeding expectations. Bank of America’s revenue was $25.82 billion, beating expectations of $25.61 billion, and adjusted EPS was $0.83, beating expectations of $0.77. Similarly, Morgan Stanley reported revenue of $15.14 billion, above expectations of $14.46 billion, and adjusted EPS of $2.02, above expectations of $1.66.
To provide insight into these results, Argus Financial Services Research Director Stephen Biggar joins Yahoo Finance.
Biggar said the most important theme is the “revival of capital markets,” or “a sustained turnaround in investment banking.” Biggar said the bank’s capital markets businesses, such as wealth management, investment banking and trading, are “doing much better.” But he acknowledged that the lending business and net interest income were “facing some challenges.”
For more expert insights and the latest market trends, click here to watch the full episode on Yahoo Finance.
This post was written by angel smith
video transcript
[AUDIO LOGO]
– Morgan Stanley and Bank of America this morning wrapped up their results for the financial sector, at least the big banks here, and both companies posted better-than-expected first-quarter sales and profits. Morgan Stanley is currently up just over 3% here, while Bank of America is seen reversing earlier gains and is down about 4% in trading. Joining us to discuss all these results is Stephen Biggar, director of financial services research at Argus Research. Stephen, thanks for joining us. Of course, we’ll dig into the details. However, I would like to start with the main takeaways. What theory do you think can be drawn from the profits of these large banks?
Stephen Biggar: Indeed, the performance of the capital markets side of these global banks is much better. Investment Management – Wealth management, investment banking. Financial advisory is a little weak. At the moment it’s a kind of sideshow. But certainly that is the strength of the lending business, which is a component of net interest income, and although it hasn’t grown as much as it has in the last year or so, facing struggles due to slower loan growth and higher deposit costs. The theme is clearly the revival of capital markets. at this point.
– Do you think that will continue this quarter and beyond?
Stephen Biggar: that’s right. I think this is finally a great turnaround in the investment banking industry. Advisory revenue should accelerate particularly in the second half of this year. We had a very strong first quarter in terms of announced deals, but of course the banks won’t be able to get these proceeds until the deals close later this year or even early next year. So it establishes a pretty good revenue pipeline there. In fact, sponsors currently hold many assets in the private market. They will want to unload those assets and make a profit for their investors.
That is, it can either be made public to another investor or privately made public. And in fact, Ted Pick talked about it on the Morgan Stanley phone call. He did see a spike in IPO activity in the first quarter, and the dialogue with prospects has certainly become more constructive. So after two years of low activity, there is a lot of reserve demand and market values are near record levels, which is very favorable for private-to-public conversion. So after some false starts last year, it looks like we’re in for a more sustained rise here.
