Shares of BofA rose 4.5% while Morgan Stanley was up about 2.5%. Citi’s stock gained less than 1% and Wells Fargo fell more than 1%. But the broader market enjoyed an earnings rally.
The somewhat muted reaction from some bank investors might be due to the fact that their good news was already priced into the shares. Bank stocks have already surged this year on hopes of an economic rebound and rising long-term bond yields, which help to boost lending profits.
Top banking executives sounded upbeat about the future, too.
“The recovery from the pandemic continues to drive corporate and consumer confidence,” said Citi CEO Jane Fraser, who took over the top spot in the bank in March, in a press release.
Leaders from other big banks were similarly bullish.
“Asset quality remained strong, with loss rates approaching 50-year lows, enabling the release of loan loss reserves again this quarter,” said Bank of America chief financial officer Paul Donofrio in the earnings release.
Banks prepared for a worst case scenario that never materialized
Major banks set aside billions of dollars last year to prepare for the possibility that consumer and business loans could sour in the midst of the pandemic-driven recession. But that didn’t happen. Credit quality has remained strong, and, as a result, banks are now seeing a boost to profits.
Top Wall Street firms are also benefiting from the breakneck pace of dealmaking in Corporate America. Companies have gotten the urge to merge and many top unicorn startups have gone public this year. That’s fueled a surge in investment banking fees.
Morgan Stanley reported a 67% increase in investment banking revenue, numbers that CEO James Gorman dubbed a “standout performance” in the earnings release. Morgan Stanley also got a boost from acquisitions of online broker E-Trade and asset manager Eaton Vance.