The bank is also expected to remain an active acquirer of its own stock during the second quarter. Given the sales of the reinsurance business and the remaining ICBC stake, you should expect risk weighted asset mitigation, and Basel III readiness will be another focal point in the bank’s upcoming earnings.
Mixed quarter but good expense control
Overall, Morgan Stanley (NYSE:MS) should experience a good quarter of fundamental performance while good expense control should continue to help the bottom line.
Based on the Dealogic data since the beginning of the quarter, I have slightly better expectations for Morgan Stanley (NYSE:MS)’s investment banking revenue. I believe the bank will be able to post higher revenue from investment banking than the prior quarter.
However, within the Institutional Securities business segment, the expectations are not encouraging for its FICC revenue. The bank is expected to produce around 10% lower revenue from core income activities. This is largely due to a more challenging environment for the interest rates and some pullback with respect to the mortgage business.
The first-quarter results demonstrated better than expected expense control. I believe it’s fair to expect this better expense control to continue through the second quarter. However, some seasonally higher non-compensation expense can be expected for the second quarter. Aggregate core compensation expense is expected to be accrued at around 50% of total revenue, which is higher compared to Goldman Sachs Group Inc (NYSE:GS)’.
Competition
Both Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) compete with JPMorgan Chase & Co. (NYSE:JPM) in the U.S. JPMorgan Chase & Co. (NYSE:JPM) is the largest bank by assets in the U.S. and has the second largest market share in the rebounding U.S. housing market.
The bank is expected to produce a higher top line during the second quarter, largely due to the climbing interest rates during the second quarter. JPMorgan Chase & Co. (NYSE:JPM) is expected to make another $2 billion in revenue if the 10-year Treasury yield increases 100bps. If the yield increases 300 bps, the bank will make $5 billion in additional revenue. Since the beginning of the current year, the 10-year Treasuries have gone up 71bps to as high as 2.57%. This means, the bank is definitely going to report some additional revenue in the second quarter.
Conclusion
Given the situation, Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) are expected to report higher revenue at the end of the second quarter. While JPMorgan Chase & Co. (NYSE:JPM) will benefit from higher yields, Goldman Sachs Group Inc (NYSE:GS) will benefit from sold expense and capital management. Therefore, I am bullish on both the stocks. Morgan Stanley (NYSE:MS) is expected to report a mixed quarter with a focus on expense control.
Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM).. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article What to Expect From Banking Stocks originally appeared on Fool.com is written by Adnan Khan.
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