Morgan Stanley, Bank of America Q1 results beat expectations; US to lead G7 in economic growth for 2024, says IMF

Written by Amanda

Morgan Stanley posted its first quarter results on Tuesday, beating analysts’ estimates on both profit and revenue.

The bank recorded a 14 per cent increase in Q1 profit compared to the previous year, reaching $3.41bn, or $2.02 per share. This growth was supported by positive outcomes in each of its three primary business segments, as wealth management, trading and investment banking exceeded expectations. Total revenue climbed 4 per cent to $15.14bn.

Shares in Morgan Stanley surged approximately 2.5 per cent following the earnings announcement. Key highlights from the report include a 4.9 per cent rise in wealth management revenue to $6.88bn, driven by market gains and fee income growth, offsetting a decline in interest income. 

In a call with investors, CEO Ted Pick addressed concerns regarding reports of regulatory investigations into the bank’s wealth management client-screening processes, stating that the company has been actively focused on enhancing these procedures over the years.

Equities trading revenue increased by 4.1 per cent to $2.84bn, primarily due to increased derivatives volumes. Meanwhile, fixed income trading revenue slipped by 3.5 per cent to $2.49bn but still exceeded expectations. Investment banking revenue jumped by 16 per cent to $1.45bn, fuelled by increased debt and equity issuance.

However, the investment management division fell short of expectations, with revenue climbing 6.8 per cent to $1.38bn, below the anticipated $1.43bn.

Morgan Stanley’s positive performance mirrors that of its industry peers, including Goldman Sachs and JPMorgan, which also reported strong trading and investment banking results for the quarter.

Bank of America continued the analyst-beating streak by also reporting better-than-expected Q1 earnings on Tuesday
, again driven by a strong performance within its investment banking division. 

According to the bank’s report, revenue totalled $25.98bn, exceeding the $25.46bn forecast by analysts. Investment banking revenue surged by 35 per cent to $1.57bn, surpassing the $1.36bn estimate. 

However, the bank stated that overall profits declined by 18 per cent to $6.67bn, or 76 cents per share, including a $700mn charge related to the FDIC special assessment. 

Revenue experienced a slight slip of 1.6 per cent, primarily due to a decrease in net interest income compared to the previous year. 

Bank of America’s chief financial officer, Alastair Borthwick, informed analysts in a conference call that net interest income will likely decline in the second quarter to about $14bn due to a decrease in wealth management and markets interest income, though he mentioned the potential for growth in the second half of the year. 

Net interest income has been declining in recent quarters as funding costs have climbed alongside the rise in interest rates. Bank of America’s shares fell by more than 3 per cent.

The US is set to lead the G7 nations in economic growth this year
, according to forecasts by the IMF. 

Fuelled by robust household spending and investment, the IMF projects that US growth will reach 2.7 per cent this year, exceeding the 2.5 per cent estimated for 2023 and marking a 0.6 percentage point increase from previous forecasts.

In second place to the US, the IMF expects Canada to be the next best performer in the G7 with a growth rate of 1.2 per cent, while Germany’s expansion is forecast to be the weakest at 0.2 per cent. Japan is projected to grow 0.9 per cent, while the UK is expected to expand by 0.5 per cent after stagnating in 2023.

However, the surge in US economic activity has also raised concerns about inflation, potentially impacting the pace and timing of Federal Reserve rate cuts

In an interview with the Financial Times, IMF chief economist Pierre-Olivier Gourinchas said: “If the inflation pressures persist beyond what we have right now, in the US in particular, then we would expect that they would have later cuts and maybe fewer cuts.”

While the recent surge in US growth has alleviated fears of a global economic downturn, the IMF warns of ongoing risks, including potential commodity price increases stemming from an escalating geopolitical conflict in the Middle East.

US President Joe Biden is relying on the strength of the US economy to boost his chances against presumptive Republican nominee Donald Trump in the upcoming presidential election. 

Despite a recent FT-Michigan Ross poll showing a rising number of registered voters approving of Biden’s economic management, nearly four out of five US voters polled expressed deep concern about inflation, according to the FT. A delay in Federal Reserve rate cuts could further impact Biden’s re-election prospects.

Currently, investors expect Fed rate cuts by September, with potential further cuts by year-end.

Vietnam’s government is reportedly engaged in an emergency rescue operation of Saigon Commercial Bank
, which is linked to real estate tycoon Truong My Lan, who was recently sentenced to death by a Vietnamese court for her involvement in a $12bn fraud case. 

Without government intervention, SCB faces collapse, as reported by Reuters, citing three bank documents and an anonymous source.  

According to one of the bank documents seen by Reuters, the State Bank of Vietnam has injected approximately $24bn in “special loans” into SCB as of early April. This financial intervention followed Lan’s arrest in October 2022, which triggered a bank run on SCB and eventually led to the central bank’s takeover of the institution. Vietnam’s central bank did not reply to requests for comment.

On April 11, Lan was found guilty of charges related to bribing government inspectors and misappropriating over $12bn from SCB, in a scheme which spanned from February 2018 to October 2022. This amount surpasses the market capitalisation of most Vietnamese banks. 

Prosecutors alleged that Lan unlawfully obtained control over more than 90 per cent of SCB by paying 27 individuals and entities to acquire ownership stakes in the bank. Lan had pleaded not guilty to embezzlement and bribery charges and will appeal the verdict of the People’s Court of Ho Chi Minh City, according to one of her lawyers.

China has launched a round of new anti-corruption inspections targeting some of its largest state-owned banks, its central bank and key financial regulators. As reported by Bloomberg, the anti-corruption probe follows a similar round of inspections in 2021, which resulted in widespread arrests and penalties across the country’s financial industry

Citing reports from China Central Television, Bloomberg said the country’s Ministry of Finance, the National Financial Regulatory Administration and the China Securities Regulatory Commission will be subject to on-site checks by anti-corruption authorities

Additionally, major state-owned lenders such as Industrial and Commercial Bank of China, as well as China’s primary stock exchanges in Shanghai and Shenzhen, are included in the inspection.

With central government inspection teams already stationed in 17 out of the total 34 entities involved, the latest round of inspections are expected to last for three months.

According to Bloomberg’s analysis, based on official announcements, at least 130 financial officials and executives faced investigation or punishment last year as a result of 2021’s round of investigations.

Source: thebanker.com

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Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai