Bank Earnings Bonanza: Morgan Stanley, Wells Fargo, Citi and Bank of America All Report Strong Quarters

Last Updated: Thursday, October 14, 2021 12:45 PM | Bobby Raines

Several of the countries largest banks reported earnings before the bell this morning with the bulk of them turning in better-than-expected quarterly reports.

After making lots of money from trading in the volatile markets of 2020 and early 2021, the sources are a little different, but the story is much the same. The business of being a big bank is very profitable.

Investment Banking

Morgan Stanley (MS) reported a 67% increase in investment banking revenue as higher M&A transaction volume and as well as underwriting volume for both stock and fixed-income offerings soared.

Reserve Releases

After setting aside capital to cover loans that seemed likely to go bad during the pandemic, banks are unlocking that money as the prospect for many loans is looking better as the economy recovers.

Wells Fargo (WFC) released $1.7 billion from it's reserves, while Bank of America released $1.1 billion. Citigroup, meanwhile, said it's loan-loss reserves have declied to $17.7 billion from $26.4 billion a year ago, but didn't specify how much of that reduction was in the current quarter.

Morgan Stanley

Morgan Stanley topped expectations in a quarter that includes both the addition of E*Trade to it's wealth management business, and Eaton Vance to the investment management operation.

Wells Fargo

Wells Fargo CEO Charlie Scharf said the company's loan book grew for the first time since the first quarter of 2020.

Scharf later went on to remind investors of the company’s pivot away from past practices saying, “While the recent expiration of the 2018 CFPB consent order regarding retail sales practices is an important milestone in our progress to correct our past practices, the recent OCC enforcement actions are a reminder that the significant deficiencies that existed when I arrived must remain our top priority.”

Scharf even mentioned the firm may have setbacks along the way to improving its cultural changes. Which sounds grounded and realistic but also highlights that most of Wells Fargo's struggles in recent years have been entirely self-inflicted.

Bank of America

Bank of America (BAC) turned in a strong quarter. CFO Paul Donofrio said in the company's press release, "Net interest income improved, despite a challenging rate environment, and our fee-based businesses continued to benefit from robust markets and the strong relationships we have built with our clients over many years."

This suggests that as interest rates rise, the bank could become even more profitable in the coming quarters.

Sales and trading revenues increased 8.8% from the second quarter, driven by a 32.5% increase in equity trading income. This was partially offset by a 4.8% fall in fixed income trading fees. 

Citigroup

Adjusted revenue at Citi rose 3% on strong performance from the bank's institutional clients group, while net income rose by 48%, helped by that loan-loss reserve release.

Citi CEO Jane Fraser sounded similar notes to Bank of America's Donofrio, saying, “The recovery from the pandemic continues to drive corporate and consumer confidence and is creating very active client engagement as you can see through our strong results in Investment Banking and Equity Markets, both up approximately 40% year-over-year, in addition to double- digit fee growth in Treasury and Trade Solutions as we help our clients reposition their supply chains.”

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