The last of Q4’s big bank earnings came in mixed Wednesday, as Bank of America and Morgan Stanley delivered decent results that allayed some fears around expenses, even as they generally failed to inspire.
Trading was the Achilles’ heel for Wall Street last quarter. JPMorgan, Citi and Goldman all came up short in Markets, and Wednesday’s reports did little to change that narrative.
FICC revenue at BofA was $1.57 billion in Q4, short of the $1.76 billion consensus expected. Equities was essentially in line. All in all, Q4 trading revenue of $2.93 billion was well short of the $3.10 billion investors wanted to see. At Morgan, FICC was similarly underwhelming. Revenue of $1.23 billion was shy of the $1.44 billion the Street expected, while equities managed a beat.
All in all, it wasn’t a great quarter for Wall Street’s traders (figure above).
BofA cited a “weaker credit trading environment” and Morgan’s characteristically Spartan press release described the fixed-income landscape as “challenging.”
On the bright side, NII beat at BofA. $11.52 billion compared favorably to the $11.37 billion consensus expected (figure below), and marked a new pandemic-era high.
Total loans and leases were the highest since Q3 2020 (Q4 2020 in Consumer). The bank expects “strong” NII growth this year versus 2021 and said loan growth should continue.
Asset management fees and IB revenue were both records for BofA in Q4. “Investment Banking had its best year ever,” Brian Moynihan remarked, adding that despite Q4’s relatively lackluster results, the Markets business nevertheless notched its highest sales and trading revenue in a decade in 2021.
Moynihan was keen to emphasize that the bank “continued to support communities, helping them address some of society’s biggest challenges, including the environment, the pandemic, racial equality and economic opportunity.”
On the expenses front, the market seemed to take solace in comments from CFO Alastair Borthwick, who said “revenue rose faster than expenses,” helping the bank log a “second straight quarter of YoY positive operating leverage.”
Expenses surged on Wall Street last quarter as competition for talent and pandemic dynamics drove up the cost of minting money. At BofA, noninterest expense rose 6% on incentive compensation, “partially offset by lower COVID-19 related costs.”
As for Morgan, expenses weren’t as onerous as expected. Comp expense of $5.49 billion was just slightly higher versus Q4 2020, and came in below the $5.8 billion analysts expected.
James Gorman delivered the usual deadpan statement. “We have a sustainable business model with scale, capital flexibility, momentum and growth,” he said. Later, he noted that Morgan expects an additional half-billion in NII from rate hikes this year.
All in all, BofA and Morgan marked a constructive close to an otherwise downbeat reporting season for Wall Street. Whether it’ll be enough for investors to pile back into banks after pushing financials 12% higher in two weeks headed into earnings is an open question.
