Goldman Sachs And Bank Of America Earnings

Goldman Sachs And Bank Of America Earnings

over 3 years ago2 mins

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Goldman Sachs and Bank of America (BoA) became the latest investment banks to report positive third-quarter results on Wednesday – but while Goldman’s stock climbed, BoA’s slithered down 4% 🐍

What does this mean?

Goldman beat investors’ expectations across the board. Facilitating clients’ trades of “FICC” investments – fixed income (like bonds), currencies, and commodities – as well as advising them on all manner of deals helped revenue come both thick and fast. That led to the firm reporting a much higher profit than predicted too.

Source: Bloomberg
Source: Bloomberg

BoA wasn’t quite as lucky. Its quarterly revenue was slightly more constricted than investors had forecast, although profit was more or less as planned – partly thanks to the new trend of banks putting less money aside in case of loan defaults 🏦 But given 84% of companies exceeded earnings expectations last quarter, merely doing as well as predicted didn’t satisfy investors hungry for a so-called “beat and raise”.

Source: The Wall Street Journal
Source: The Wall Street Journal

Why should I care?

BoA seems to have missed out on the FICC trading boom – its business grew just 4% versus the same time last year, compared to Goldman’s 49% and JPMorgan’s 50%. What’s more, consumer banking – think savings and lending – is more important to BoA’s earnings than it is for rivals 💳 Record-low US interest rates squeezing the amount the bank makes from loans by more than feared therefore added insult to injury – and perhaps encouraged investors to forgo patriotism in favor of profits.

Source: Bloomberg
Source: Bloomberg

It’s tough right now being a bank like BoA or Citigroup, relying heavily on consumer and business loans to make money. As well as earning less interest than before, they’re on the hook for major losses if struggling customers fail to repay. Riskier activities like trading have been better bets for banks recently, and that probably won’t change this quarter: next month’s US election is expected to lead to a lot of investor chopping and changing.

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