Financials were broadly higher today alongside mixed earnings reports from some of the major banks. The long-ailing Bank of America Corp. (BAC) was among the standout reports on Tuesday. The North-Carolina based financial goliath indicated third-quarter profit increases and a massive uptick in strength from last year’s 7.3 billion losses. The bank credited one-time gains for the $6.2 billion in reported profit, mentioning both two accounting gains and the sale of its holdings of China Construction Banks.
While the number pleased investors and helped shares of BAC rise sharply in trading for the day, the results do not indicate health for the bank. The sale of the China Construction Bank shares was responsible for the larger part of the gains, $3.6 billion pretax. It may have puffed up the numbers, but the Bank is still suffering from core weakness and is seeing hard losses in its private equity and strategic investment divisions. In the absence of extremely valuable assets to sell, it will be difficult or impossible to maintain the level of gains.
During a conference call, Brian Moynihan, the bank’s CEO, said he was focused on cutting costs going forward, including a reduction of its workforce by 30,000. Moynihan was open about anticipating weaker revenue.
There has been some doubt regarding a long-term turnaround for the bank, and certain measures to keep it above water have been under harsh public scrutiny. A planned $5 monthly surcharge on BAC issued debit cards has been hotly rejected by the public.
These challenges seemed to recede alongside the multi-billion profits. YTD, Bank of America has fallen over 50 percent.
While Bank of America reversed losses Goldman Sachs Inc. (GS) posted them for the second time since the bank when public over a decade ago.
Goldman Sachs Group Inc. reported a third-quarter loss of $428 million on Tuesday, only the second quarterly loss since the investment bank went public 12 years ago. Goldman Sachs losses did not come as a surprise; the struggles of the bank through this past summer’s financial volatility were well chronicled.
The institution’s Chief Financial Officer, David Viniar, reiterated the challenge volatility has posed for the bank also pointing a finger at the instability at European banks. The company also cited a a $3 billion loss from bonds, stocks and stake in a Chinese bank.
Goldman Sachs has been credited with its prowess in investment banking, a factor that has helped it stay above water through the recession. A decline in stock and bond offerings for the quarter; however, resulted in weakness in the department. Underwriting revenue for the quarter was lower by 61 percent, negatively impacting the bank’s bottom line.
Like Bank of America, Goldman looked to cut costs in personnel, which it reduced by 1,300 from the previous quarter.
In spite of the equivalent of an 84 percent per share loss, shares of Goldman were ascending in trading. The losses have largely already been factored into the bank’s share price which is around 23 percent lower for the three month period and 40 percent down YTD.
Morgan Stanley (MS) is not scheduled to report earnings until tomorrow, but shares of the bank gained aggressively during the session. The manner in which the bank has hedged its real estate exposure since 2008 has been a hotly debated issue. The process has cost MS over $2.8 billion and investors will have a chance to see how effective the measures have really been tomorrow.