Big Bank Earnings Set a Favorable Table for Two Holdings
The outlook for investment banking, asset management and commercial banking keeps us bullish.
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Building on the positive data points we collected last week from Jefferies JEF, and setting the stage for quarterly results tomorrow from Bank of America BAC and Morgan Stanley MS, earlier on Wednesday a bevy of big banks delivered December quarter results that easily topped consensus expectations.
The results, including those from JPMorgan Chase JPM, Goldman GS, Citigroup C, and Wells Fargo WFC confirm our thesis on our BAC and MS shares. They are also lifting them nicely as well.
Digging into the earnings report from JPMorgan, we find its investment banking business rose 49%, its market revenue climbed 21%, assets under management grew by double digits and consumer banking posted solid gains as well. While those figures support our thesis on MS and BAC shares, what stood out to us in JPM’s earnings report was the net income margin improvement it reported.
Looking across at the results reported by Goldman Sachs, its investment banking fees were 24% higher year over year and its deal backlog exited 2024 at higher levels compared to Q3 2024. During the earnings call, Goldman Chief Financial Officer Denis Coleman supported the view that investment banking activity should continue to improve in the coming quarters:
"The intensity of our client dialogues has been increasing and we're seeing renewed CEO confidence and desire from sponsors to transact. While there remains some policy uncertainty, there is an expectation that the regulatory burden will be reduced, which should serve as a tailwind to risk assets and capital deployment. We are optimistic on the outlook for 2025 and expect a further pickup in M&A and IPO activity."
Much like JPMorgan, Goldman’s asset and wealth management business benefitted from higher average assets under management, which comes as no surprise given the gains we saw in the market last year.
And we would be remiss if we didn’t share some thoughts from JPMorgan’s Jamie Dimon:
"The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business.
"However, two significant risks remain. Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time. Additionally, geopolitical conditions remain the most dangerous and complicated since World War II. As always, we hope for the best but prepare the firm for a wide range of scenarios."
Our Take
The December quarter results posted by JPM and GS are leading to some price target increases from Wall Street firms. Those results and the respective outlook comments are supportive of our shares of Morgan Stanley and Bank of America. Should we see similar quarterly results tomorrow from Morgan Stanley and Bank of America, it could lead us to revisit our price targets as well.
To set the stage for those reports, which will be out in the early on Thursday tomorrow, Morgan Stanley is expected to report EPS of $1.69 on revenue of $15.0 billion for its December quarter. For Bank of America, those figures are $0.77 and $25.13 billion.
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At the time of publication, TheStreet Pro Portfolio was long MS and BAC.
