US Major Banks' Performance: Bank of America's Q2 net profit increased by 19% YoY, while Morgan Stanley's net profit declined by 13%. However, overall performance exceeded expectations.

After a turbulent and challenging first quarter and continuous stress testing, three out of the six largest banks in the United States, namely Wells Fargo, JPMorgan Chase, and Citigroup, have announced their second-quarter performance on Friday. Bank of America and Morgan Stanley also released their second-quarter results this evening.

So far, it seems that the net interest income, which has been a source of easy money in a high-interest-rate environment, has brought substantial profits to several major banks. The strong consumer spending in the United States has also been a key factor in the financial reports of many large banks. The growth of these businesses has alleviated the headwinds caused by rising interest rates and a frozen trading environment for investment banking.

Furthermore, the issue of deposit outflows from small and medium-sized banks caused by the banking crisis does not seem to have troubled the major banks (it has even brought in new customer assets). Apart from the soaring bad debt provisions, the financial reports of these major banks, which serve as an "economic barometer," have not yet shown any signs of a recession. However, many market participants have warned that the risk of a recession still exists, and the impact of tightening monetary policy will take some time to manifest.

Bank of America: Q2 Profit Increases 19% YoY to $7.4 Billion, Net Interest Income Growth Slows

On Tuesday evening, July 18th, Bank of America announced its second-quarter performance as of the end of June. Its revenue and profit slightly exceeded market expectations, indicating that large banks continue to benefit from the high-interest-rate environment created by the Federal Reserve's rate hikes.

Specifically, Bank of America's second-quarter revenue increased by 11% YoY to $25.33 billion, slightly surpassing analysts' expectations of $25.05 billion. Net interest income grew by 14% to $14.2 billion, and profit increased by 19% YoY to $7.4 billion, with earnings per share of $0.88, slightly exceeding analysts' expectations of $0.84.

CEO Brian Moynihan stated in the earnings press release:

"We continue to see a healthy development of the U.S. economy, with a slowing growth rate and a vibrant job market. The growth of our customer base and customer activity in all of our businesses has expanded the favorable impact of rising interest rates."

However, it is worth noting that although analysts expected Bank of America to be one of the biggest beneficiaries of rising interest rates, its net interest income growth is not as impressive compared to other banks. Last week, competitor JPMorgan Chase reported a significant increase in net interest income, with second-quarter profits soaring by 67%.

In contrast, Bank of America's net interest income growth has also slowed down due to the deceleration in loan and deposit growth.

In terms of other business, in this quarter, Bank of America's investment banking revenue increased by 7% to reach $1.2 billion. This is in stark contrast to Citibank, which announced its performance on Friday and saw its investment banking department slump due to months of trading difficulties.

Furthermore, strong consumer spending in the United States contributed to a 15% increase in Bank of America's consumer business revenue this quarter, reaching $10.5 billion.

However, Bank of America is currently facing pressure in its commercial real estate loan business, especially in its office building loan portfolio. Rising financing costs and the popularity of remote work have caused significant losses for office building owners in the United States.

Against this unfavorable backdrop, Bank of America's credit loss provisions increased by $602 million this quarter, reaching $1.1 billion.

In terms of deposits, Bank of America's end-of-quarter deposit balance was $1.9 trillion, a decrease of $18 billion from the previous quarter, representing a 1% decline, with no significant outflows observed.

After the financial report was released, Bank of America's stock price rose by approximately 1% in pre-market trading.

Since the beginning of this year, Bank of America's stock price has fallen by approximately 11%, while the KBW Bank Index has fallen by about 20%.

This month, the Consumer Financial Protection Bureau announced fines against Bank of America for abusing customer resources, including false accounts and false charges.

Morgan Stanley: Profit Decline of 13%, Wealth Management Business Reaches New High

Compared to Bank of America, Morgan Stanley, which has a larger investment banking business, has faced some embarrassment in the Wall Street trading slump. However, its strong wealth management business has supported Morgan Stanley's revenue during this sluggish market.

The bank's announced performance today showed a 13% year-on-year decline in net profit to $2.182 billion this quarter. Although the decline is significant, it is not as bad as the expected 20% decline by analysts.

Morgan Stanley's revenue this quarter also exceeded analysts' expectations, reaching $13.46 billion. In particular, its wealth management business recorded a 16% year-on-year growth to $6.66 billion, surpassing Wall Street's expectation of $6.5 billion.

The revenue growth of this division is mainly due to the high interest rate environment. In addition, the European and American banking crises in March and April allowed Morgan Stanley's wealth management division to attract net new client assets of over $90 billion.

In terms of investment banking business, since the tightening of liquidity by the Federal Reserve, global IPO and venture capital activities have been frozen for a long time, and the market no longer expects any improvement in Morgan Stanley's investment banking business. This quarter, investment banking revenue was $1.16 billion, unchanged from last year.

Stabilization may be a sign of recovery. Data from Dealogic shows that global M&A activity in the second quarter decreased by 36% compared to the same period last year. Nevertheless, compared to the first quarter, the increase in M&A activity in the second quarter has ignited hopes of a recovery.

James Gorman, CEO of Morgan Stanley, said:

"In a challenging market environment, the company has achieved solid performance."

After the financial report was released, Morgan Stanley's pre-market trading fell by less than 1%.

The stock has performed fairly well this year, with a cumulative increase of 2%. Although it lags behind the market's 18% gain, it has outperformed the KBW Bank Index, which has plummeted 20%.

It is worth noting that James Gorman, the legendary CEO who has been leading Morgan Stanley since 2010, announced in May that he will step down within a year. Investors are currently focusing on Morgan Stanley's succession plan.

Tomorrow evening, Goldman Sachs, the last major bank, will release its second-quarter results.