Market Overview

Friday's Market Minute: Banking On The Capital Markets

Friday's Market Minute: Banking On The Capital Markets

Bank stocks have largely underperformed the market year-to-date. It’s a tough sector to be invested in considering general state of the economy. Unsure of how bank earnings would look this quarter, general expectations that investment banking would continue to outperform traditional, deposit-based lending banks were confirmed by earnings results this week.

The tale of two divergent banking industries is symbolic of the pandemic economy. Goldman Sachs Group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS) are mainly Wall Street investment banks and institutional securities managers, catering to the needs of the portion of the economy doing exceptionally well. Other banks like Wells Fargo & Co (NYSE: WFC) and Citigroup (NYSE: C) have commercial banking operations dealing with Main Street, and that is not doing so well.

Up nearly 5% so far this week, Morgan Stanley has little, if any, exposure to the fragile, broad consumer segment. About 40% of the company's revenues come from wealth management, plus at least as much from institutional clients, investment banking, sales, and trading. Pressure on net interest margins, stemming from interest rates at record lows, combined with high provisions for credit losses, are the reasons why profitability at Wells Fargo was down 56% relative to the same quarter last year. While Wells may have not have reported a great quarter in relation to previous years, third quarter results were still far better than the market feared with the stock down 57% for the year at $23. The bank is expected to have higher net charge-offs in future quarters, but perhaps the market is clearly missing that Wells Fargo is still a highly profitable business.


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Posted-In: TD AmeritradeEarnings News General

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