Margin growth supports Wall Street bank earnings

Despite widespread economic uncertainty, credit quality at the major Wall Street banks was bolstered in the third quarter by rising margins and strong asset quality, says Moody’s Investors Service.

In a new report, the rating agency said the big U.S. banks — Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. — saw aggregate pre-tax profit decline by 24% year over year to US$36.2 billion in the third quarter.

Moody’s said the banks’ aggregate pre-tax, pre-provision profit held up better, driven by rising net interest income and expanding net interest margins.

Compared with the same quarter last year, profits were down 6% in the third quarter, and up 8% from the second quarter.

“Volatile markets drove heavy customer flows, leading to solid trading revenue, mitigating the impact of sharply lower investment banking revenue,” it said.

At the same time, Moody’s reported that the banks’ asset quality and capital levels remained strong.

“Rising regulatory capital requirements for five of the six firms drove capital retention, although this was at least partially offset at some firms by higher unrealized losses on investment securities,” it said, adding that “bank liquidity remains abundant, a key ongoing core strength.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.