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Morgan Stanley and Bank of America closing out their earnings for the big banks here. Stocks moving in opposite directions right now. Bank of America reporting second quarter profit that fell nearly 7% from the year prior. However, they topped expectations for the second quarter and report a slight beat on net interest income here. Now, Morgan Stanley, we should focus on that as well. That also beat on the top and bottom line, but the company's big wealth management division missing on revenue. Let's bring in Stephen Bigger, who is the Argus Research Director of Financial, uh, Financial Services Research. Uh, great to have you here with us. You have Morgan Stanley listed as one of your top picks. Take us into your analysis from the earnings that came out this morning and perhaps what that spells out about the broader banking sector right now in the earnings season.

Yeah, good morning. So, uh, right, a little bit light on the wealth management side from Morgan Stanley today. Um, certainly offset by a terrific, uh, performance by investment banking, revenue up 51% there. Uh, so that's been kind of the story, uh, broadly with, with banks and what we expected going into the quarter, that we'd have a much better, uh, backdrop, an environment for, uh, investment banking. We've seen gains, uh, from as low as 20% from Goldman Sachs to, uh, over 70% for Citigroup, uh, and everything in between. So, so I think that's the narrative, uh, that, that, that we expected. Um, you know, the lending business, uh, and, and, and deposits have certainly, uh, gotten more costly, uh, for, for the banks at, at large. I mean, you think of them a little bit more in terms of the regional, uh, bank side, but certainly the large global banks have, uh, some deposit pressures as well. Uh, fortunately, more of the pure plays like Goldman and Morgan Stanley, uh, the investment banking side, the fee revenues are much more dominant, uh, than, than the net interest income side. So, so I think the narrative going forward is, is going to be something similar. You know, if you like these banks, as I do, uh, for, it's for the improvement in the capital market side and, and not so much the, uh, the lending business or, uh, uh, you know, specifically wealth management.

Even if we do see the Fed, uh, wait to cut rates, I guess, in terms of that turnaround or some of the strength that maybe you are expecting to see here in the coming quarters, is that going to delay that? And I guess by how much?

Well, I, I think this, uh, the higher interest rates, uh, the higher for longer that we've had have, uh, you know, been, uh, been not good for banks. Uh, they've kind of worn out their welcome at, at this point. So I, I think, uh, lower rates would, would be, uh, a benefit for banks both on, uh, the loan growth side. Uh, loan growth has been very anemic as high, high interest rates have, have curved loan demand. Uh, and also taking some pressure off those deposit costs. So I, I think that's why banks are, uh, while they're very well hedged to whether rates go up or, or down, um, I think at this point, uh, rates are, would still be high enough. We're not expecting rates to fall off a cliff. So in the back half of the year, if we do get two interest rate cuts as we continue to see, uh, I think the, um, the lending business will actually pick up, uh, relative to where it was in the first half.

Which, which bank is worst positioned right now from your perspective to really navigate this macro environment?

Well, we have, uh, a preponderance of buys across the board. Uh, and that would include Wells Fargo, who I would admit has had the weakest results of, of any of the banks we've talked about so far. JP Morgan, City, Goldman, Bank of America, and Morgan Stanley. But Wells, uh, you know, in addition to the regulatory, uh, continued issues there with, uh, terms of the asset cap, um, they are still kind of working their way, uh, out of that. They guided down on, on net interest income. Uh, certainly among the large, large players, Wells has, uh, more of a dominance in, uh, from the lending business, less so on the fee-based business. So, so that's a just a little bit more difficult environment to, to be in. So, while we like the group broadly, uh, I think it's really the global banks that are going to have the better time here.

The what bank? Sorry?

Sorry?

What, can you just repeat the last line that you said there, who's going to have the better time?

Well, no, I think the global banks, uh, so the JP Morgan, City, Goldman, Morgan Stanley, Bank of America have, uh, have a better opportunity for revenue growth in this environment than a Wells Fargo.

Stephen, more specifically, on Morgan Stanley because that's where we are seeing the big reaction here this morning. Yes, there was a lot of, uh, key data points within this report or key metrics that investors are encouraged about, but there really has been this focus on some of the weakness that we are seeing within wealth management just in terms of not living up to expectations. Is that something that you're confident CEO topic is going to be able to expand in terms of having to gain even more market share within wealth management, or is this an area which could prove to be a bit challenging here for the bank in the coming quarters?

Well, I feel they have a very strong wealth management franchise. Uh, and, um, but you know, having said that, they have faced some pressure and there's a lot of competition, particularly for the high and ultra-high net worth, uh, segment within wealth management. So I, I think that's where some of this is coming from, uh, as well as this, uh, again, higher interest rates have, have pushed up deposit costs. So to the extent that they are not offering the, you know, the best rates, uh, on deposits, uh, there's some migration to, to other firms. So I think they, uh, you know, the conference call will, will shed some light, uh, on, on those. Uh, but again, I, I think a terrific wealth management franchise, they tend to have relatively good, uh, retention. Um, but something was amiss this quarter and, and, uh, we're going to have to dig into what that is.

Stephen Bigger, who is the Argus Research Director of Financial Services Research. Thanks so much for taking the time here this morning.

Thank you.