Several of America's largest financial firms reported strong earnings and revenue Thursday thanks to solid demand for loans, better credit quality and a boom in mergers and initial public offerings.
Morgan Stanley, Citigroup, Bank of America and even troubled Wells Fargo posted healthy results that surpassed analysts' expectations.
Shares of BofA rose 4.5% while Morgan Stanley was up about 2.5%. Citi's stock gained less than 1% and Wells Fargo fell more than 1%. But the broader market enjoyed an earnings rally.
The Dow rose nearly 535 points, or 1.6%. The S&P 500 and Nasdaq each finished up about 1.7%. Investors also cheered the continued drop in jobless claims filings, which fell to a new Covid-era low of 293,000.Strong results from insurer UnitedHealth, drugstore giant Walgreens and Taiwan Semiconductor also lifted sentiment.
The somewhat muted reaction from some bank investors might be due to the fact that their good news was already priced into the shares. Bank stocks have already surged this year on hopes of an economic rebound and rising long-term bond yields, which help to boost lending profits.
Top banking executives sounded upbeat about the future, too.
"The recovery from the pandemic continues to drive corporate and consumer confidence," said Citi CEO Jane Fraser, who took over the top spot in the bank in March, in a press release.
Leaders from other big banks were similarly bullish.
"Asset quality remained strong, with loss rates approaching 50-year lows, enabling the release of loan loss reserves again this quarter," said Bank of America chief financial officer Paul Donofrio in the earnings release.
Banks prepared for a worst case scenario that never materialized
Major banks set aside billions of dollars last year to prepare for the possibility that consumer and business loans could sour in the midst of the pandemic-driven recession. But that didn't happen. Credit quality has remained strong, and, as a result, banks are now seeing a boost to profits.
Top Wall Street firms are also benefiting from the breakneck pace of dealmaking in Corporate America. Companies have gotten the urge to merge and many top unicorn startups have gone public this year. That's fueled a surge in investment banking fees.
Morgan Stanley reported a 67% increase in investment banking revenue, numbers that CEO James Gorman dubbed a "standout performance" in the earnings release. Morgan Stanley also got a boost from acquisitions of online broker E-Trade and asset manager Eaton Vance.
Goldman Sachs wraps up the parade of bank earnings Friday morning. It is also expected to report strong results, thanks in large part to the robust M&A and IPO environment. Shares of Goldman Sachs have surged 45% this year, making it the top performer in the Dow.
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