December 3, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Morgan Stanley, Citi Shares Emerge as Winners of Earnings Blitz

(Bloomberg) — Morgan Stanley and Citigroup Inc. shares are outperforming their peers on stronger-than-expected results after five of the six largest U.S. banks reported first-quarter earnings this week.

Both banks’ shares posted initial advances of at least 3.5% before a broader market pullback on Thursday, helped by big gains from their fixed income and equities trading businesses resulting in their beating analyst forecasts for both revenue and earnings. It’s a welcome change of pace for their investors, who have endured more than two months of rocky trading as bank stocks declined.

Citi soothed some concerns over the bank’s exposure to Russia, announcing its overall Russia risk had declined by roughly $2 billion to $7.8 billion at the end of March. Its shares had fallen more than 20% since Russia invaded Ukraine in late February, the worst performance among the big banks.

“Given that sentiment was very negative around Citi and people feared a large Russia-related hit, this report is going to be a relief,” said Vital Knowledge founder Adam Crisafulli.

For Morgan Stanley, the surprise increase in trading revenue was enough to outweigh a shaky quarter by its investment banking division as the volatile start to the year for markets suppressed appetite for deal-making. Thursday’s rally has shares on track to snap a three-week losing streak, though they remain 13.5% lower so far this year.

“We like to see revenue beats couple with positive operating leverage and an impressive 20% return on average tangible common equity,” Piper Sandler analyst Jeff Harte said of Morgan Stanley’s results.

Read more: Wall Street Traders Reap Gains on Turmoil as Growth Fears Mount

Global Concerns

Analysts voiced concerns for the banking sector heading into earnings season. While the prospects of rising interest rates helped drive the group higher by 35% in 2021, many strategists have warned that the benefits of higher rates will be overshadowed by a slowdown in economic growth as the Federal Reserve attempts to stanch surging inflation.

And though JPMorgan Chase & Co. — like many of its peers — reported better-than-expected trading revenues, its shares have slumped on back-to-back days after revealing a $902 million build-up in reserves that it said is to protect against risks of high inflation and the war in Ukraine. Chief Executive Officer Jamie Dimon said although he’s “optimistic” about the U.S. economy, he still sees “significant geopolitical and economic challenges ahead.”

Read more: JPMorgan Increases Reserves on Rising Possibility of Recession

“Markets are fluky on how they interpret trading. Sometimes they are in the mood to reward it, and sometimes they are in the mood to dismiss it,” said Steve Sosnick, chief strategist at Interactive Brokers LLC.

Meanwhile, Wells Fargo & Co. plunged as much as 7.2% on Thursday, its biggest intraday drop in more than a year, after coming up short of revenue estimates and reporting expenses that topped analyst projections. Adding to the pressure were comments from CEO Charlie Scharf, who also voiced concerns about the risks that rising rates and the war pose to both consumers and the economy.

Investors will now turn their attention to Monday’s premarket release from Bank of America Corp. and its outlook for loan growth. Shares of the bank slumped more than 3% on Thursday, set for their fourth straight day of declines and 13th time in the last 14 trading sessions that they’ve been pushed lower.

©2022 Bloomberg L.P.