Bank of America, Morgan Stanley stocks rise after Q4 profits beat estimates

Yahoo Finance's Brian Cheung joins the Live show to discuss fourth quarter earnings for Bank of America and Morgan Stanley.

Video Transcript

- But we start this morning with the big traditional banks, because we keep hearing from them. Bank of America and Morgan Stanley both out with their numbers. And Brian Cheung continues to be on the case. And speaking of continuations, Brian Cheung, we continue to see this theme of loan growth recovering to some degree, on the one hand. On the other hand, fixed income trading, not so great.

BRIAN CHEUNG: Absolutely. And it is kind of fitting that the final day of the big bank earnings are one consumer bank and then one money center Wall Street bank that are reporting. But let's unpack the numbers that we had gotten before the opening bell this morning. Starting off in Charlotte, North Carolina with Bank of America, again, one of those big four banks. Revenue clocking in just short of the Street's estimates at about $22 billion. Adjusted earnings per share on the bottom line of $0.82. You could see that beat the Street's estimates of $0.76.

The real story for Bank of America is in their traditional kind of consumer-facing business, right. How much do they make on loans? And we saw that net interest income, which is basically the interest collected on loans, came in at $11.4 billion. That's an 11% increase year over year. And then non-interest income, that's basically the fees collected on those same products coming in at $10.7 billion. That's an 8% increase.

Now keep in mind, Bank of America is among those large banks that announced recently they'll be reducing overdraft fees and eliminating non-sufficient funds fees. So pay attention to that non-interest income in the quarters to come. The CFO Alastair Borthwick telling me on a call this morning that he expects any loss in income there to be offset eventually by savings on expenses, because a lot of call center issues actually concern those types of fees. But Bank of America getting a nice boost in pre-market trading, up almost 4%.

But let's shift gears to Morgan Stanley down in Wall Street. Their revenue coming in, $14.5 billion, beating the Street's top line estimates. And they beat on the bottom line as well. Adjusted earnings per share, adjusting for that big Eaton Vance acquisition, coming in at $2.08, beating the Street's estimates of $1.94.

Now, the big story for them, as you mentioned, Julie fixed income net revenues down 31% from a year ago. Equity underwriting took a step down. That's because IPOs and SPACs simply cooled off during the quarter. We did see financial advisory revenues up thanks to M&A action. And these stories are all the same as Goldman Sachs.

So what really differentiated Morgan Stanley, which is a big reason why you're seeing a pop in the pre-market trading up over 5%, is because comp and benefits up only 4% compared to Goldman, 31% year over year. So it seemed like Morgan Stanley just had a better handling of expenses in that quarter, which is a big reason why Goldman Sachs sold off as much as 8% yesterday, but Morgan Stanley could get a bump this morning.

However, still important to know Morgan Stanley is getting a higher efficiency ratio than its peers at around 66%. So it could be some more work to do. We'll see if that earnings call happening right now offers a little bit more [? color, ?] guys.

- Brian, bank earnings season is officially over. What's one of your hottest takeaways?

BRIAN CHEUNG: Yeah, I was going to say, you guys are done with me after three consecutive business days of these bank earnings. But I think the big story, that pendulum is shifting from the big money center Wall Street banks towards the consumer-facing banks. Wells Fargo, Bank of America, those are the banks that stood out during this earnings season.

And it's not because their loan pipeline was already showing growth or that their net interest income was already going to the moon. But in a rising rate environment, that's going to take some steam out of risk assets, which means that those trading desks over at the likes of Goldman Sachs, Morgan Stanley, JPMorgan Chase, will not be the main source of revenue for those banks anymore. Really where you're going to get a lot of that boost is in the heightening yield curve that allows these types of banks that are underwriting loans to get a little bit more interest income.

That's going to be a big story for, again, those big consumer banks and also the super regionals and the regional banks that we don't cover as much as well. They are likely going to be winners from that steeper yield curve, which means that pendulum that we've seen over the last two years of, maybe the money center banks were really best positioned through that pandemic, starting to change around now.

- Don't worry, Brian. We're never done with you. After all, there's a Fed meeting next week. Oof. Don't you worry.

BRIAN CHEUNG: You guys can't get rid of me.

- All right. Thanks so much, Brian. Appreciate it.