When Bank of America Corp. and Goldman Sachs Group Inc. posted earnings Tuesday, one had record income from lending while the other had better-than-expected trading. The surprise is which was which.
Goldman Sachs, the vaunted trading house, pointed to growth in its effort to lend to wealthy people as a bright spot. Bank of America, with 4,500 branches across the U.S., relied on a smaller drop from its trading unit to help beat revenue estimates.
Weakness at each bank's bread-and-butter business sent shares of the firms falling despite both topping profit expectations. Goldman Sachs trailed rivals for a second straight quarter in fixed-income trading, while Bank of America posted a surprise decline in net interest income, which is a fundamental part of banks' revenue.
The current environment is "creating headwinds in areas that are core strengths for the firm," Goldman Sachs Chief Financial Officer Marty Chavez said on a conference call with analysts. "We know we need to do better."
Bank of America and Goldman Sachs were the two best-performing major U.S. bank stocks in the three months after Donald Trump's election, each rising more than 30 percent as investors bet they'd benefit from relaxed regulation and higher interest rates.
Regulatory Wait
The banking industry is still awaiting changes to regulations, as well as legislation for taxes and infrastructure spending aimed at boosting the economy. The Treasury department last month published a report on how it would like to reshape financial regulation.
"All of them would be helpful," Bank of America Chief Executive Officer Brian Moynihan told analysts when asked which recommendations would benefit his business most.
In the meantime, the firms are talking up the potential for their core businesses to improve. In the second quarter, Bank of America said, stagnation in longer-term rates and the sale of a U.K. credit-card unit held back interest income. Its shares fell as much as 1.7 percent, and were down 0.5 percent to $23.91 as of 1:54 p.m. in New York.
"What tends to drive Bank of America's stock is the trajectory of interest rates," Shannon Stemm, an analyst at Edward Jones & Co., said in an interview. "Given BofA is one of the more interest-rate-sensitive names, there was some disappointment on the net-interest side."
