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Bank of America tops Goldman Sachs in trading
MARKETWATCH 12:39 PM ET 7/18/2017
Symbol Last Price Change
GS 223.7 -5.56 (-2.43%)
BAC 23.73down -0.29 (-1.21%)
QUOTES AS OF 12:48:41 PM ET 07/18/2017
A tale of two banks: one for Main Street, one for Wall Street?

In the wake of the 2008 financial crisis, Goldman Sachs Group Inc.(GS) clung to its position as a leading investment bank.

Bank of America Corp. (BAC) spent years in the wilderness, its fate tied to a shaky American consumer and its image sullied by lingering effects from the crisis, like the decision to buy troubled mortgage lender Countrywide.

What a difference a decade makes.

On Tuesday, both banks reported earnings and revenues that beat analyst expectations, but that's about all they had in common. Revenue from institutional clients was down 17% compared with a year ago, Goldman (GS) said, led by a whopping 40% decline in trading in fixed income, currencies, and commodities. Investment banking fees were also down, by a more modest 3%. In fact, despite a 42% increase in investing and lending, the bank's overall revenues declined 1%.

Chief Financial Officer Martin Chavez said commodities was a drag.

"I would just observe that out of the 73 quarters that we've been a public company it was the worst quarter for the commodities business," he told analysts on the earnings call, according to a FactSet transcript.

Read:Goldman Sachs stock slips as fixed income trading slides 40% in Q2 (http://www.marketwatch.com/story/goldman- sachs-stock-slips-as-fixed-income-trading-slides-40-in-q2-2017-07-18)

Bank of America (BAC) , meanwhile, reported that overall net income rose 10% compared with a year ago, thanks largely to retail customers. Deposits were up 9% even though the bank is known for paying as little as possible for those accounts.

Read: Bank of America(BAC) profit and revenue top views (http://www.marketwatch.com/story/bank-of-america-profit-and- revenue-top-views-2017-07-18)

The bank's executive team told analysts that they're keeping 90% of the mortgages they originate, rather than selling them on to government entities like Fannie Mae (FNMA) and Freddie Mac (FMCC), in order to deepen relationships with customers, most of whom have pristine credit scores.

And in a strange twist of events, Bank of America(BAC) reaped more revenue from trading -- $3.4 billion--than Goldman Sachs(GS), which earned $3.1 billion.

Still, analysts had only muted praise for Bank of America's(BAC) performance. "At very first blush, we see the results as mixed," wrote UBS' Saul Martinez Tuesday. Martinez pointed to special items in the earnings release, like the sale of the bank's U.K. cards business and some severance costs.

But Goldman may have an even tougher road ahead. Instinet analyst Steven Chubak pointed to the stronger level of activity in the second half of 2016, noting that the bank may have a hard time matching it this year.

Lee Wild, Interactive Investor's head of equity strategy, also struck a note of caution. "A recent drop in volatility was always going to be bad news for the big banks' trading arms, and Goldman Sachs(GS) is more exposed than most," he wrote. "It can absorb a 40% slump in fixed income, currency and commodities trading this quarter, and more on top, but those questions around the sustainability of its business model will refuse to go away after these numbers."

Goldman shares were down more than 2% midday, and more than 6% for the year to date. Bank of America's(BAC) stock was trading down about 1%, but has returned 7.2% for the year to date.

The Dow Jones Industrial Average has gained 9% in 2017, while the S&P 500 has gained 10%.

-Andrea Riquier; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
07-18-171239ET
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