Investors, fearful of rising interest rates and a looming recession, desperately needed something to break the pattern. It appears these two major banks provided that catalyst in the form of an earnings surprise.
The downward trend is taking a break as a new week starts, thanks mainly to better-than-expected earnings reports from several large banks. After several banks, including Wells Fargo (NYSE: WFC) and JPMorgan Chase (NYSE: JPM), reported mixed earnings on Friday, analysts did not have a great deal of faith in the earnings for Monday’s reporters, including Bank of America (NYSE: BAC) and Bank of New York Mellon (NYSE: BK).
Fortunately for investors, those analysts turned out to be wrong. Bank of America was expected to report an 8.2% decrease in EPS and a 3.4% increase in revenue; the bank wrote a 4.7% decrease in EPS and a 7.5% increase in revenues. The unexpected beat came from higher interest rates and double-digit loan growth; net income fell due to lower service charges and a slowdown in investment banking.
Source: CNBC Television YouTube
Much like Bank of America, Bank of New York Mellon beat on both the top and bottom lines. BofA’s $4.28 billion in revenues eked out a beat over estimates of $4.2 billion, while their EPS of $1.21 handily beat the $1.10 estimate. The revenue beat came from rising interest rates and growing securities/market services; net interest revenue rose 44%, while security services and wealth services increased 13% and 17%, respectively.
Investors took the results as a positive, which drove the indexes higher. The Dow Jones, S&P 500 and NASDAQ gained 1.86%, 2.65% and 3.43%, respectively. As we enter earnings seasons and more companies begin to report, we’ll get an idea of whether these banks are the exception to the rule or if the economy as a whole is improving.
Shares of Bank of America closed trading today at $34.88 per share, up +3.73% on the day. YTD, BAC stock is down -24.47%.
Shares of Bank of New York Mellon last traded at $39.96 per share, down -0.99% on the day. YTD, BK stock is down -31.70%.
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Disclaimer: Wealthy VC does not hold a long or short position in any of the stocks mentioned in this article.