All Eyes on the Banks as We Get Big Beats From BofA, Morgan Stanley
Investment banking strength was a big driver but could an extended shutdown get in the way of IPOs? Let's hear what BAC, MS have to say today.
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Following upbeat quarterly results from Goldman Sachs (GS) , JPMorgan Chase (JPM) , and Wells Fargo (WFC) yesterday, the Portfolio’s financial exposure through Morgan Stanley (MS) and Bank of America (BAC) both easily surpassed September-ending quarterly expectations. A common thread to the vibrant quarter ties back to developments that led us to increase our MS and BAC targets multiple times this year: The investment banking market and the earnings leverage it brings, especially to Morgan Stanley. BofA benefited from it as well, but it also continues to profitably grow its consumer banking business
Both Morgan Stanley and Bank of America will hold earnings calls this morning, and we’ll be back with more complete thoughts once we’ve digested management comments and other takeaways. In the meantime, here is a quick review based on what we know so far.
Bank of America
Bank of America delivered a beat-and-raise quarter with gains across each of the company’s business segments. Earnings per share for the quarter came in at $1.06, well ahead of the $0.95 market consensus as well as $0.81 posted in the year-ago quarter. Revenue for the quarter clocked in at $28.1 billion, up 11% year over year, easily clearing the market forecast of $27.5 billion. Net Interest Income (NII) rose 9% to $15.2. billion reflecting gains in consumer deposits and average loan sizes, as well as those in the company’s Global Wealth and Investment Management and Global Banking segments.
In our view, the key to the quarter’s upside reflected the positive mix shift toward BofA’s more profitable businesses – consumer banking and global banking, which houses its investment banking business. Those two segments generated 65% of BofA’s pre-tax income during the quarter, and that means on this morning’s earnings call, we’ll be focused on what management says about them in the coming quarters. Given the government closure, which affects the Securities and Exchange Commission, the mix of BofA’s investment banking backlog -- including initial public offerings, secondary offerings, and M&A assignments -- will be of keen interest to us.
The longer the government shutdown goes, the more likely we are to hit an IPO speed bump, but at this point, that is more likely a timing issue that should resolve itself either late this quarter or in early 2026. We’ll continue to monitor market conditions and reassess that thought as needed, and implications for our BAC target.
As we puzzle through that, we’ll also look for an update on BofA’s expansion and cost reduction plans for its consumer banking segment, which carried the highest pre-tax margins in the September quarter. The question we’ll be asking is how sustainable the quarter’s pre-tax margins are, how that ties to digital banking adoption, and where BofA sees its consumer banking market share topping out. The answers to those will shed color on the bank’s increased NII forecast for the current quarter to $15.6-$15.7 billion, up from its prior forecast of $15.5 billion -$15.7 billion.
We’ll revisit our $60 target as necessary.
Morgan Stanley
Morgan Stanley delivered a simply massive quarterly earnings beat with EPS of $2.80 on record revenue that rose 18% to $18.22 billion, outstripping the market’s expectation of $2.10 and $16.7 billion. While the investment banking business was a clear standout with its 44% revenue increase to $2.11 billion, a figure that was about $430 million more than Wall Street expected, year-over-year gains were also posted at its Wealth Management and Investment Management businesses, which continued to grow its client base and assets under management.
While each of Morgan’s reportable segments delivered a combination of revenue growth and margin expansion, looking at its year-over-year performance and even that compared to the June quarter, it’s clear that Morgan’s September quarter benefited from the upswell in investment banking activity and that operating leverage. While Morgan’s Institutional Securities segment, which houses its investment banking business, posted a 25% year-over-year increase in revenue, its pre-tax income soared 66.5% compared to the September 2024 quarter. Put another way, it accounted for 37% of total pre-tax income compared to 28% in the year-ago quarter.
While we like the steady influence on earnings afforded by Morgan’s growing Wealth Management and Investment Management businesses, the focal point of this morning’s earnings call, at least for us, will be on Morgan’s investment banking pipeline for the current quarter and into 2026. What we saw in the earnings release reaffirms our thesis on the shares. Now we need to see how much firepower remains while we wait for the SEC to reopen and what that means for the IPO market. Based on that pipeline, we’ll review our $170 target as needed.
At the time of publication, The StreetPro Portfolio was long BAC, MS.
