Wall Street was in a good mood on Tuesday, building on Monday's afternoon rebound to move higher in the opening minutes of trading. Although the Dow Jones Industrial Average (^DJI 0.41%) lagged behind, other major stock market benchmarks were up as much as half a percent as investors anticipate getting a lot more information about corporate earnings in the days and weeks to come.
Bank stocks got a head start on earnings releases last week, with some of the giants of the industry being among the first to report their results for the quarter that ended March 31. Tuesday morning, Bank of America (BAC -0.17%) and Goldman Sachs Group (GS 1.81%) had their turns at the plate. With shares of Goldman falling but BofA seeing a rise, investors still have some questions about what the banking industry is saying about the health of the global economy and the prospects for market moves for the rest of 2023.
Bank of America moves up
Shares of Bank of America were higher by 2% early Tuesday. The Charlotte-based bank reported first-quarter financial results that showed healthy gains in net income and relatively strong performance across many of its business segments.
Bank of America saw total revenue climb by more than $3 billion to $26.3 billion. Those gains came largely on a 25% jump in net interest income to $14.4 billion, which stemmed from rising interest rates and the resulting higher payments from borrowers. Net income climbed 15% year over year to $8.2 billion, working out to $0.94 per share.
Where BofA stood out, though, was in other areas of its business. Noninterest income was actually slightly higher on the year, with strength in its global markets business helping to offset falling fees from asset management and investment banking. Even in the wealth and investment management segment, BofA saw client balances fall just 5% to $3.5 trillion on adverse market conditions, and its Merrill brokerage business helped contribute to strong asset flows for the bank.
BofA did set aside $931 million for credit losses, boosting its net reserves by $124 million and working through net charge-offs of more than $800 million for the quarter. Yet deposit balances were down just 1% to $1.9 trillion, and that took away any fears that Bank of America's consumer business is taking a hit from recent turmoil among smaller financial institutions.
Goldman Sachs hits a slump
Moving the other way, shares of Goldman Sachs fell 3% Tuesday morning. The Wall Street banking giant relies more heavily on activity in investment banking, and weak conditions there weighed on overall results in the first quarter.
Goldman's numbers didn't hold up as well as Bank of America's did. Net revenue of $12.22 billion was 5% lower than in the year-ago quarter, due largely to extensive weakness in the bank's trading-related business segments. Interestingly, net interest income was also down 3% year over year, as Goldman failed to take advantage of rising rates because of its relatively modest exposure to the consumer banking side of the business. Earnings fell 18% to $8.79 per share.
The poor market environment dealt a 16% hit to Goldman's revenue from global banking and markets, including a 26% drop in investment banking fees. Yet despite seeing lower incentive fees, asset and wealth management posted a 24% rise in net revenue and made a strong contribution to overall profit.
Because Goldman doesn't have huge consumer exposure, its charge-offs have been relatively modest. Yet until markets start to bounce back, the Wall Street banking giant could have trouble getting back to its former growth trajectory.
