The somewhat subdued response from bank investors could be due to the fact that your good news was already priced into the stocks. Bank stocks have already soared this year as they hope for an economic recovery and rising long-term bond yields that will fuel credit gains.
The top managers of the banks also sounded optimistic about the future.
“The recovery from the pandemic continues to build confidence from businesses and consumers,” said Citi CEO Jane Fraser, who took the bank’s top spot in March, in a press release.
The front runners from other major banks were similarly optimistic.
“Asset quality remained strong, with loss rates nearing 50-year lows, which enabled the release of credit risk reserves again this quarter,” said Paul Donofrio, chief financial officer of Bank of America, in the earnings release.
Banks have prepared for a worst-case scenario that never materialized
Major banks set aside billions of dollars over the past year to prepare for the possibility that consumer and business credit could turn sour amid the pandemic-induced recession. But that didn’t happen. Credit quality remains high and, as a result, banks are now seeing a boost in profits.
The leading Wall Street firms are also benefiting from the breakneck pace of business deals in Corporate America. Companies have felt the urge to merge and many top unicorn startups have gone public this year. This has led to an increase in investment banking fees.
Morgan Stanley reported a 67% increase in investment banking revenues, numbers CEO James Gorman described as “an outstanding achievement” in the earnings release. Morgan Stanley also received a boost from the acquisition of the online broker E-Trade and the asset manager Eaton Vance.