Bank earnings reveal capital markets’ ‘resurgence’: Analyst

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Morgan Stanley (MS) and Bank of America (BAC) have reported their first quarter earnings, beating expectations on the top and bottom lines. Bank of America posted revenue of $25.82 billion, surpassing estimates of $25.61 billion, alongside an adjusted EPS of $0.83, beating the $0.77 estimate. Similarly, Morgan Stanley reported revenue of $15.14 billion, outperforming the $14.46 billion estimate, with adjusted EPS of $2.02, exceeding the $1.66 estimate.

To provide insights on these results, Argus Research Director of Financial Services Research Stephen Biggar joins Yahoo Finance.

According to Biggar, the overarching theme is “a resurgence in capital markets” — a “durable upturn in investment banking.” Biggar notes that the banks’ capital markets-related businesses, such as wealth management, investment banking, and trading, are “doing much better.” However, he acknowledges that the lending business and net interest income have “faced some struggles.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This post was written by Angel Smith

Video Transcript

(AUDIO LOGO)

Morgan Stanley and Bank of America wrapping up earnings for the financial sector this morning, at least for the major banks here, with both firms beating expectations for revenue and earnings in their first quarter. We’re looking at Morgan Stanley continuing to rise here, a little over 3%, while Bank of America reversing earlier gains down about 4% in the trade, right now. Joining us to discuss all of these results, we have Stephen Biggar Argus Research’s Director of Financial Services Research. Stephen, thank you for joining us. Obviously, we’ll dig into the details. But just want to start off on your major takeaways. What do you think the thesis is coming out of these major bank earnings?

STEPHEN BIGGAR: Well, certainly, the capital markets side of these global banks are doing much better. Investment management– wealth management, investment banking trading. Financial advisory is a bit weak. That’s kind of a side show at this point. But certainly, that’s been the strength the lending businesses, the net interest income component, has faced some struggles with anemic loan growth and higher deposit costs over last year or so, not much growth there, but clearly the theme is a resurgence in capital markets at this point.

Is that something that you think is going to continue here for the current quarter and then looking ahead?

STEPHEN BIGGAR: We do. I think this is a finally adorable upturn in investment banking. Advisory revenues should particular gather speed in the latter quarters of this year. We had a very strong first quarter in terms of announced deals, and banks don’t make those revenues until, of course, the deals close later this year, or even early next. So that sets up a pretty good pipeline of revenues there. Actually, sponsors now are sitting on a lot of assets in the private market. They’re going to want to unload those assets and generate returns for their investors.

So that’s that, either goes public or privately to another investor. And actually Ted Pick on the Morgan Stanley call talked about that as well. We know IPO activity surged in the first quarter and certainly the dialogues with prospects have been more constructive. So there’s a lot of pent-up demand after two years of sluggish activity, and we’re near record market valuations, and that’s very favorable for private-to-public conversion. So after some false starts last year, it looks like it’s a more durable upturn here.

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