The big Wall Street banks reported strong third-quarter earnings, driven by robust capital markets alongside continued net interest income growth, Moody’s Ratings reports.
In a research note, the rating agency said the large U.S.-based global investment banks — including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo — had positive results buoyed by a combination of robust revenues from capital markets and wealth management, stable asset quality and positive consumer credit trends.
“Each bank generated solid earnings growth,” it said.
All of the banks benefited from strong markets, which boosts asset-based fees, investment banking and trading revenues — led by Goldman and Morgan Stanley, whose results are most closely tied to the capital markets.
“Advisory, underwriting and trading volumes were all robust in the third quarter, driving strong capital markets revenue at each bank,” the report said.
At the same time, net interest income from commercial banking rose too, Moody’s noted.
“Growth in loans during [the third quarter] again highlighted the banks’ ability to overcome the challenging economic backdrop,” it said.
And, despite a gloomier economic outlook, asset quality was generally stable.
“Early stage delinquencies in consumer portfolios remain reasonably benign and commercial credit issues are largely idiosyncratic,” the report said.
The banks all prudently manage liquidity, which “remains a key credit strength,” the report noted.
However, the banks’ capital ratios are likely to decline as regulation is relaxed, which Moody’s said would be “credit negative” for the banks.
“We expect the banks’ capital ratios to decline over the medium term, but also that managements will await greater clarity on pending regulatory proposals before reducing buffers significantly,” it said.