Big Bank Earnings Bode Well for a Pair of Our Holdings

*Quarterly results from JPMorgan and Citi both benefitted from strong investment banking and wealth management performance

*This sets up earnings favorably from Morgan Stanley and Bank of America on Tuesday, but Morgan’s business mix puts it ahead of BofA

*As we collect bank expectations for 2H 2024 investment banking activity, we’ll adjust our MS and BAC price targets as needed.

In our opening comments on Friday about the June PPI report, we alluded to the morning’s earnings report from JPMorgan JPM and why it supports our view on Morgan Stanley MS and Bank of America BAC ahead of their earnings reports on Tuesday. Our thesis has been that both would benefit from the improving investment banking landscape, while their wealth management businesses would benefit from the stock market’s performance so far this year.

Inside JPMorgan’s June earnings report, we learned its investment banking revenue rose 46% year over year, its client investment assets rose 14% and JP’s market and securities services revenue climbed 8%. In quarterly results from Citi C this morning, its investment banking revenue soared 60% year over year, and its wealth segment also posted favorable revenue growth.

We also saw JP’s average loan sizes for autos and credit cards up year over year with the same result showing for credit card service sales volumes. Because of the data we’ve seen in the monthly consumer credit reports, those findings aren’t surprising to us. What was a somewhat unexpected surprise, though, was the amount of money it sets aside for potential credit losses — $3.05 billion. That was ahead of the market expectation of $2.8 billion and $1.88 billion in the March quarter. JP has always had a strong balance sheet, one CEO Jamie Dimon refers to as a “fortress balance sheet,” so some of this could be conservatism on the company’s part.

Because MS does not compete in that part of the business, the shares are being lifted by the collected investment banking and wealth management comments. When BofA reports, we’ll be scrutinizing its comments on credit losses as well as its net interest income (NII) target for 2024. Admittedly, what we saw this morning favors MS shares over BAC ones, but we also recognize that year-to-date BofA securities is currently third in overall investment banking league tables so far this year. While Morgan Stanley is fourth, the league table points to its 2Q 2024 activity being very brisk compared to JPMorgan and Goldman Sachs.

As we read through Friday's earnings conference calls from JP, Citi and others, as well as those for Goldman Sachs, on Monday, we’ll be focused on their comments for 2H 2024, especially for M&A and IPO activity. To that, we’ll add what we dissect in earnings and guidance from Morgan Stanley and Bank of America on Tuesday, revisiting our MS and BAC price targets as needed.

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At the time of publication, TheStreet Pro Portfolio was long MS and BAC.