American banks are not in the same boat. They issue annual reports one after the other and they are all different.
It’s better to fire a warning shot than to risk defeat. After annual reports from JP Morgan and Goldman Sachs were widely viewed with suspicion, the spread of corruption among American banks might now be preventable thanks to more diligent reports issued by Bank of America and Morgan Stanley.
Farsighted investors are beginning to hear some of the music they have hoped for about a banking recovery, but it does not necessarily mean that banking is regaining lost ground.
Investors have clearly seen a decline in trading revenues and the gradual shift in growth to net interest earnings (interest earned minus interest paid) overseas thanks to a return in demand and the Federal Reserve raising rates.
In an inflationary environment, technological and human resource investments make banking even more complicated to predict, but the biggest complication for sectorial forecasts is the noise CEOs are making about their operational leverage.
Business Models
The best way to prevent distorted perceptions about where banking is headed is to put all the banking giants in the same bag. However, Morgan Stanley boss James Gorman has been further distinguishing his company from the rest by announcing a goal to raise the profitability of private funds.
His business model is defined by the strong link between remuneration and production. In this regard, his large-scale acquisitions in 2020 and 2021 of E-Trade and Eaton Vance allowed him to access their technologies as well as their profitable productivity.
We should note that going forward, Morgan Stanley will be offering 20% return on tangible private funds versus the less than 17% it offered previously.
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