about 2 years ago • 3 mins
Bank of America (BoA) and Morgan Stanley announced on Wednesday that their earnings both came in better than expected last quarter, but this is where the two rivals part ways.
What does this mean?
BoA and Morgan Stanley will be thrilled the dealmaking boom hasn’t let up: their investment banking segments – which take a fee from every deal they work on – made 26% and 6% more in revenue last quarter than the same time in 2020. BoA topped that up with the $850 million it originally set aside in case pandemic-bruised customers couldn’t cover their loans, while Morgan Stanley celebrated a bumper 59% uptick in revenue in its investment management business. Not even slowing trading revenue could bring them down: BoA and Morgan Stanley’s profits climbed by a better-than-expected 28% and 9% respectively.
Why should I care?
For markets: Don’t bank on dealmaking.
It’s easy to lump US banks together, but they aren’t all cut from the same cloth: Morgan Stanley, for example, doesn’t have a retail banking business like BoA does. That could make all the difference as interest rates start to rise, since it’ll allow BoA to charge more on the loans it offers. That’s a much more stable business model, especially as there’s no guarantee companies will keep striking deals when it becomes more expensive to borrow money. And don’t investors know it: BoA’s stock has outperformed Morgan Stanley’s stock by 9% this year.
Zooming out: Fintechs are taking over.
Still, even BoA will want to watch its back: digital banking app Revolut – the UK’s second-most valuable fintech company – announced on Wednesday that it’s launching a commission-free stock trading platform in the US, as part of its goal to become a “super app” capable of managing every aspect of its users’ finances. It’s a good time to make the move: data shows that American retail traders spent over seven times more on stocks last year than in 2019.
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Data out on Wednesday showed that UK inflation jumped to the highest level in 30 years last month – a major life event Brits might rather forget…
What does this mean?
It’s not just your imagination, afternoon tea has been getting more expensive: prices in the UK rose by a higher-than-expected 5.4% last month versus the year before – up from November’s 5.1% and well above the 4.5% the Bank of England (BoE) was expecting. Rises came from all angles, with everything from food to furniture to footwear getting more expensive in the run-up to Christmas. But here’s a band-aid on a broken bone: data out this week also showed that the UK added a better-than-expected 184,000 jobs last month, bringing the unemployment rate down slightly to 4.1%.
Why should I care?
Zooming in: The peak? You can’t handle the peak.
Inflation isn’t likely to drop off in the UK anytime soon: the country’s energy price cap – the government’s way of limiting what suppliers can charge for energy – is set to rise about 50% in April. Consider too that job openings also hit a record high of 1.3 million last quarter, which might lead employers to offer better salaries and, in turn, pump more disposable cash into the economy. Put together, it’s hardly a surprise that economists think price rises are yet to peak: by their math, that won’t come until inflation hits 6.5% in April.
The bigger picture: Rate hikes are a double-edged sword.
The strong jobs market paired with decades-high inflation has economists predicting that the BoE will raise interest rates again next month. It still won’t be an easy decision, mind you: another rate hike should help slow down rising prices, but it would also make paying debts more expensive, which could leave already squeezed Brits with even less cash in their pockets.
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