Quarterly results above expectations give rise to hope for a soft landing for the US economy. But pay attention to the guidance for next year, warns Morgan Stanley.
Bank of America and Goldman Sachs presented financial results for the third quarter of 2023, exceeding analysts’ expectations. These positive signs indicate that both banks are facing economic challenges with resilience and solid strategies. Despite the global uncertainties, the quarterly reports of the two banks, in addition to those of JP Morgan, Wells Fargo, and Citigroup published last week, provide hope of a soft landing of the US economy and that the feared recession may not be on the horizon.
An analyst at Morgan Stanley - who will reveal the quarterly accounts on Wednesday, October 18th - warns, however, that it will be necessary to monitor the guidance for next year. According to the investment bank, the S&P 500 will fall to 3,900 points by the end of the year.
Let’s examine the details of their performance to better understand the current economic picture.
Bank of America, strong quarterly
Bank of America demonstrated remarkable resilience in the third quarter, beating analysts’ forecasts. Net income rose 10% to $7.8 billion, equivalent to $0.90 per share, compared to $7.1 billion or $0.81 per share in the third quarter of 2022 Furthermore, revenues reached $25.32 billion, exceeding the expected $25.14 billion. An increase of this magnitude indicates effective financial management and a well-planned strategy.
A significant aspect of this growth is net interest margin (NII), which increased by $614 million, or 4%, to $14.4 billion. This result was mainly driven by the positive effects of higher interest rates and growth in the lending sector. This dynamic points to a solid economic foundation that can help sustain current prosperity.
However, it is crucial to take into consideration that despite these successes, the bank had to deal with increasing loan loss provisions, which rose to $1.2 billion. This represents an increase of $336 million compared to the previous period, indicating growing concern about credit risks. Despite this, Bank of America appears to be well-positioned to meet future challenges.
On the NYSE the stock is trading at parity at $27.62.
Goldman Sachs towards recovery
Goldman Sachs reported third-quarter profit that, although down about a third from a year earlier, beat expectations. Profit was $2.1 billion and trading revenue remained stable despite the slowdown in such activity on Wall Street. Goldman Sachs CEO David M. Solomon expressed optimism in the company’s future direction, saying "we are confident that the work we are doing now provides us with a much stronger platform for 2024."
However, it should be noted that Goldman Sachs’ journey over the past year has been characterized by challenges and adaptations. The expansion into retail banking, an initiative begun under the auspices of the previous CEO, Lloyd C. Blankfein, and accelerated under Solomon, required significant efforts to overcome challenges. The recent sale of the fintech company GreenSky, although resulting in a loss, was a necessary step to reconfigure the company strategy.
Furthermore, the devaluations linked to real estate investments represented an obstacle to overcome. The $506 million write-down on GreenSky and the $358 million in real estate write-downs highlight the challenges the bank has faced in this area. However, the fact that Goldman Sachs has taken decisive steps to address these issues indicates a willingness to adapt and thrive in a changing economic environment.
On the NYSE, Goldman Sachs shares lost 1.46% to $309.
Original article published on Money.it Italy 2023-10-17 16:16:58. Original title: Da BofA e Goldman Sachs i segnali che la recessione non ci sarà?
