Earnings Results: 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 earnings on Thursday, with the financial sector continuing to benefit from increased economic activity as the impact from the COVID 19 pandemic started to recede.

Morgan Stanley

provided the cleanest beat as its investment banking and asset management units benefited from a boost in the net worth of its wealthy clients and a flurry of capital raising and M&A on Wall Street. The bank also got a boost from its acquisitions of wealth manager Eaton Vance and online broker ETrade which closed in March and in the fourth quarter of 2020 respectively.

By comparison, earnings by Wells Fargo & Co.
Citigroup Inc.

and Bank of America Corp.

benefited from the release of loan loss reserves, as they worked to address loan growth as a key metric for their lending businesses.

Shares of Morgan Stanley rose 2.4%, Citi added 0.7%, Wells Fargo dipped 1.2%, and Bank of America moved up by 4% in Thursday afternoon trades.

Morgan Stanley investment banking revenue boosts results

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

Analysts expected the investment bank to earn $1.69 a 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,” producing a return on average tangible common shareholders’ equity (ROTCE) of 20%, highlighted by its “standout performance” in its investment bank and record net new assets of $135 billion in wealth management.

The firm’s investment banking revenue rose about 68% to $2.85 billion from $1.7 billion. Before Thursday’s gains, the stock was up 43.8% this year, compared with a rise of 16.2% by the S&P 500 index.

Citigroup earnings climb after breaking out reserve boost

Citigroup’s net income climbed 48% to $4.6 billion, or $2.15 per share, from $3.1 billion, or $1.36 a share, in the year-ago quarter. Revenue fell 1% to $17.2 billion, including a pre-tax loss of about $680 million tied to the sale of its Australia consumer business unit. Excluding this item, revenue increased 3% amid growth in its institutional clients unit.

The bank released $1.1 billion in loan loss reserves. Net interest revenue dropped 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 survey by FactSet.

Citigroup said its loan portfolio remained flat at $665 billion, but fell 1% excluding the impact of foreign exchange translation, mostly reflecting the impact of the sale of the consumer business in Australia.

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

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

Bank of America grows earnings by 57%

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

The bank released $1.1 billion in reserves to its bottom line, driven primarily by asset quality improvements.

A survey of analysts by FactSet estimated earnings of 71 cents a share on revenue of $21.68 billion and net interest income of $10.6 billion.

CEO Brian Moynihan said the bank results were “strong” as the economy continued to improve and its businesses regained the organic customer growth momentum seen before the pandemic.

Third-quarter total loans and leases fell to $908 billion from $949 billion. Total consumer deposits rose 15% to $1.94 trillion. Consumer banking deposits jumped 16% to $1 trillion.

Before Thursday’s trades, shares of Bank of America were up 42.3% in 2021.

Wells Fargo earnings rise but revenue dips

Wells Fargo & Co.’s net income rose to $5.12 billion, or $1.17 a share, in the third quarter, up from $3.22 billion, or 70 cents a share, in the year-earlier period. Revenue fell to $18.834 billion from $19.316 billion.

The FactSet consensus was for EPS of $1.00 and revenue of $18.273 billion.

The bank said it released $1.7 billion from its credit loss reserve, equal to a 30-cents bump in EPS.

It also booked a charge of $250 million, or 5 cents a share, for an enforcement action taken by the Office of the Comptroller of the Currency relating to unsound practices in home lending.

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

“Charge-offs were low, net interest income stabilized and period-end loans grew for the first time since first quarter 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 edged down to $9.93 billion from $9.94 billion, as improved results in private equity and venture capital and higher card, deposit-related and investment banking fees were offset by lower mortgage-banking revenue, lower gains on the sale of securities and lower markets revenue.

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

“The decline in mortgage banking income was primarily due to lower gain on sale margins and lower originations, as well as a decline in servicing fees, partially offset by higher gains from the re-securitization of loans we purchased from mortgage-backed securities last year,” the bank said.

Steven Check, CIO and founder of investment adviser Check Capital Management, said he remains bullish on Wells Fargo despite its share performance relative to its peers.
The stock is trading only about $2 or $3 above its book value of $42.50 a share — much lower than other big banks. It’s also positioned to benefit from any interest rate increases with its large consumer banking business, he added, noting that the company continues to work to revolve its regulatory issues.

“Things are moving in the right direction,” Check said. “Their charge-off are extremely low and their expenses continue to come down.”

Shares had gained 53% in the year to date, before Thursday’s action.

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