Is Wall Street Really on the Mend?
Stock markets performed well on Monday, but Tuesday morning brought a little bit more uncertainty back into the picture. Even as consumers have held up relatively well in the face of higher interest rates and big price increases, some still worry that the stimulus measures that put more money into people's wallets might not prove enough to get through a slowdown. Stock index futures eased lower on Tuesday, although the declines were modest and didn't take away gains from the previous day's session.
With earnings results starting to come in, investors are looking at the results from big bank stocks to see how Wall Street itself is performing in this challenging market environment. The latest results from Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) provided two interesting viewpoints of how things are faring right now.
Bank of America scores a win
Shares of Bank of America climbed about 1% in premarket trading on Tuesday morning. The banking giant posted solid results in the third quarter, as it saw strength not only in its core consumer banking segment but also in its investment banking operations.
Overall, Bank of America's numbers looked good. Total revenue was up 3% year over year to $25.2 billion, with a 4% rise in net interest income helping to drive the bank's upward momentum. Net income climbed 10% to $7.8 billion, resulting in earnings of $0.90 per share.
On the consumer side, segment revenue jumped 6% despite an 8% decline in average deposits. BofA continued to build up its loan portfolio, and it saw a 3% rise in combined spending on its credit and debit cards. BofA's wealth management division also did well, with client balances climbing 9% and considerable inflows of assets under management over the past 12 months.
Perhaps most importantly, BofA saw an uptick in activity on Wall Street. The company reported a 2% rise in investment banking fees to $1.2 billion. Moreover, in its trading unit, BofA delivered an 8% rise in sales and trading revenue, led by a 10% jump on the equity side. The unit boasted zero days of trading losses during the quarter, and that's a good sign overall that Bank of America is benefiting from a rebound on Wall Street.
Goldman suffers a slowdown
Goldman Sachs shares were little changed early Tuesday. Many see Goldman as the ultimate barometer of Wall Street activity, and some were disappointed by its third-quarter financial results.
Goldman brought in revenue of $11.82 billion, which was down 1% from the year-ago period. The bank pointed to its asset and wealth management unit in seeing significantly lower sales, although higher revenue from the global banking and markets division and the platform solutions segment helped to offset those declines. Net income dropped 363% year over year to $2.06 billion, with earnings coming in at $5.47 per share.
Goldman faced a conundrum during the quarter. Noninterest revenue was up just 3%, with an 11% plunge in commissions and fees offsetting gains in market making and investment management. Yet net interest income fell 24% year over year, and Goldman's move away from consumer banking was evident in its cost of capital.
Shareholders will want Goldman to take a close look at the expense side of its income statement, as operating expenses soared 18% from year-ago levels in the third quarter. At some point, reining in costs will be an important way for Goldman to boost its earnings for the benefit of shareholders -- and to prove that Wall Street can get in tune with the cost-cutting measures other industries have embraced.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Goldman Sachs Group. The Motley Fool has a disclosure policy.
