Fly Intel: What to watch in next round of big banks' earnings reports - InvestingChannel

Fly Intel: What to watch in next round of big banks’ earnings reports

Goldman Sachs (GS) is scheduled to report quarterly results on July 15, while Morgan Stanley (MS) and Bank of America (BAC) are expected to report on July 16. What to watch for: 1. OUTLOOK: Bank of America CEO Brian Moynihan sees second quarter trading revenue to rise by “high single digits, near 10%” and for investment banking revenue to be up about 10% in quarter, Bloomberg quoted the executive as having said. Meanwhile, Goldman Sachs CEO David Solomon said at a Bloomberg conference last month that he anticipates U.S. economic recovery to look V-shaped at first, but for that rapid growth to flatten out and be challenged in the next 6-12 months, Reuters’ Elizabeth Dilts Marshall reported. Solomon also noted that about 5% of the company’s staff have returned to work at its New York headquarters, and that about 10%-12% of workers are back at the London offices. On June 29, James Gorman, chairman and CEO of Morgan Stanley, said that, “E-TRADE (ETFC) transaction will further diversify our business model and add to our excess capital and liquidity positions. We anticipate continuing to pay our quarterly common stock dividend of 35c per share.” In an interview on CNBC a few weeks prior, Gorman had said that it was “too soon” to resume buying back shares, but added that he assumes buy backs will be resumed in months, “not years.” 2. RESULTS MAY NOT BE ABLE TO KEEP PACE WITH PEERS: On Thursday, DA Davidson analyst David Konrad downgraded Bank of America to Neutral from Buy with a price target of $25, down from $27. The analyst continues to see the company offering the strongest balance sheet and the lowest risk profile in its peer group with the lowest risk profile, but warns that its results may not be able to keep pace with its peers based on the risk constraints. Konrad added that as Bank of America’s peers build reserves, its “lower risk advantage” will be reduced, also noting that with collapsing LIBOR spreads, its net interest income outlook is concerning. 3. SEAPORT BULLISH ON GOLDMAN, MORGAN STANLEY: On Wednesday, Seaport Global analyst Jim Mitchell initiated coverage of both Goldman Sachs and Morgan Stanley with Buy ratings. The analyst argued that while not immune to credit risk, Goldman Sachs’ lending exposure is “manageable” and its interest rate risk is “de minimus.” Regarding Morgan Stanley, Mitchell thinks investors are underestimating the value of the E-Trade acquisition, the bank’s “significant” excess capital position, and potential upside in its institutional business. 4. SEC SETTLEMENT: The Securities and Exchange Commission announced back in May that Morgan Stanley Smith Barney, MSSB, has agreed to settle charges that it provided misleading information to clients in its retail wrap fee programs regarding trade execution services and transaction costs. MSSB has agreed to pay a $5M penalty that will be distributed to harmed investors. Wrap fee programs offer accounts in which clients pay an asset-based “wrap fee” that covers investment advice and brokerage services, including trade execution. According to the SEC’s order, MSSB marketed its wrap fee accounts as offering clients professional investment advice, trade execution, and other services within a “transparent” fee structure. From at least October 2012 until June 2017, some of MSSB’s marketing and client communications gave the impression that wrap fee clients were not likely to incur additional trade execution costs. During that period, however, the order finds that some MSSB managers routinely directed wrap fee clients’ trades to third-party broker-dealers for execution, which in some instances resulted in MSSB clients paying additional transaction fees that were not visible to them. As a result of MSSB’s conduct, the order finds that certain MSSB clients were unable to assess the value of the services received in exchange for the wrap fee paid to MSSB.

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