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Bank Stocks Roundup: MS vs. GS, Which Bank Had the Better Quarter?

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Investment banking giant Morgan Stanley (MS - Free Report) reported its first-quarter results before the market opened on Wednesday, marking one of the final earnings releases from the major financial players this season.

As we look at the results from all of the big banks, an interesting storyline starts to develop. Investor sentiment towards the banking industry has become a bit less bullish as interest rates have started rising, especially as some lose faith in the Trump administration’s ability to roll back regulations soon.

Nevertheless, we’ve seen a lot of strength in the recent first-quarter reports.

For example, Morgan Stanley posted earnings of $1.00 share, which comfortably surpassed the Zacks Consensus Estimate of $0.90. Quarterly revenues also surpassed expectations; the bank reported $9.7 billion in revenue this quarter, beating our consensus estimate of $9.1 billion.

The big story for Morgan Stanley was its drastic growth in fixed-income trading. Its Institutional Securities segment gained 39% to $5.2 billion—a bump that was largely the result of a significant increase in FICC income.

Goldman Sachs’ (GS - Free Report) results fall on the opposite end of the spectrum. The investment bank posted a rare earnings miss, with profits of $5.15 per share falling short of our Zacks Consensus Estimate of $5.38. Revenues of $8.0 billion also missed our expectations; our consensus estimate called for total revenues of $8.4 billion.

Interestingly enough, Goldman blamed its weak quarter on sluggish growth in its bond trading unit. In fact, Goldman’s fixed-income trading revenue climbed just 1% to $1.69 billion in the quarter. Analysts surveyed by Bloomberg expected the segment to bring in $2.03 billion.

“The operating environment was mixed, with client activity challenged in certain market-making businesses,” said Goldman chief executive Lloyd Blankfein, as management blamed weak trading revenues on a less-volatile market that produced less activity.

And Morgan Stanley wasn’t the only major bank to outperform Goldman Sachs in this segment. Goldman’s bigger competitors—Bank of America (BAC - Free Report) , Citigroup (C - Free Report) , and JPMorgan Chase (JPM - Free Report) —all posted strong growth in trading revenues.

In a head-to-head between the investment giants, Morgan Stanley clearly gets the nod this quarter. Goldman’s weak performance might be a bit of a cause for concern, especially compared to the relative strength of its competitors (also read: Forget Goldman Sachs, Buy These Bank Stocks Instead).

Shares of GS are down more than 5% since the release of its report, while MS opened nearly 3% higher on Wednesday.

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