Market Overview

A Bank Earnings Recap For Q3


This week, bank earnings have shown diverging fortunes on Wall Street and Main Street. Although consumer business slumped, banks were fueled by increasing trading activity.

Despite the fact that hundreds of thousands of small businesses have been forced to close their doors and some temporary layoffs are becoming permanent, the largest U.S. banks are doing surprisingly well and much better than expected.

Banks – Q3 Earnings Report

As the third-quarter earnings reports revealed, big banks showed they are prepared for a wave of loan defaults that is due to arrive during the second half of next year. Moreover, their own fortunes are just fine thanks to the Wall Street trading bonanza. A few common themes have emerged from the reports.

On Tuesday, Goldman Sachs Group Inc (NYSE: GS) reported strong revenue from which it generated profits of $3.62 billion that greatly surpassed analyst expectations of $2 billion. Trading of bond products linked to interest rates, corporate credit, mortgages, and the prices of oil lifted the bond division's quarterly revenue 49% higher from the same period last year. In stocks, divisional gains were 10%.

But Goldman wasn't the only bank to catch the investment and trading wave. Bank of America's (NYSE: BAC) investment banking business had the second-best performance in its history, trailing only this year's second quarter. JPMorgan Chase & Co (NYSE: JPM) also saw its trading revenue rise 21% and its investment banking revenue skyrocketed 52% from a year earlier.

Customers Are Doing Better Than Expected

Although even the biggest banks set aside large sums expecting customers will be unable to pay their loans and debts because of the pandemic, their customers ended up doing better than they expected. This is most likely the result of trillions of dollars in enhanced unemployment benefits, forgivable small-business loans, and other programs that the federal government created this spring under the CARES Act.

As a result, banks have set aside less money compared to previous quarters to prepare for losses. Bank of America and JPMorgan Chase even saw their credit card customers making their payments again. The biggest difficulty on the consumer front was born by Wells Fargo & Co (NYSE: WFC) which spent nearly $1 billion trying to come up with new payment plans to keep their struggling clients from defaulting. But even Wells Fargo found its borrowers are less likely to fall behind now than they were at the beginning of the pandemic.

Morgan Stanley Finished The Week With A Bang

On Thursday, Morgan Stanley (NYSE: MS) blew analysts' revenue estimates away by $1 billion, reporting quarterly revenue of $11.7 billion. Earnings of $1.66 per share also easily surpassed the $1.28 estimate of analysts surveyed by Refinitiv. The beyond strong results were fuelled by better-than-expected results from its Wall Street trading operations.

Compared to a year earlier, profit jumped 25% to $2.72 billion and revenue was 16% higher than the same period last year. Morgan Stanley has been Wall Street's most aggressive acquirer this year with $20 billion in takeovers. Now, it seems to be firing on all cylinders. It is safe to say that traders led the outperformance, as they brought in $400 million more in revenue than analysts saw coming, mostly through bond trading desks. Wealth management and investment management divisions also topped estimates, as they each brought in more than $200 million more in revenue than expected.


Morgan Stanley was the last of the six biggest U.S. banks to report third-quarter earnings. JPMorgan, Goldman Sachs and Citigroup (NYSE: C) managed to beat analysts' profit expectations as they set aside smaller loan-loss provisions. Bank of America fell short on revenue expectations, and Wells Fargo struggled with the impact of lower interest rates, having to cut its dividend for the first time since the Great Recession. But, despite banks performing better than expected, there are still 12 million people unemployed. There are still a lot of small businesses that need help to survive the storm. But compared to these small businesses and other industries like airlines, banks are doing more than fine.

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