Chip Stocks and Bank Earnings Extravaganza
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What are the latest earnings results from Bank of America and Charles Schwab?
Earnings season has kicked off and we have updates from the biggest names in banking and semiconductors to digest. This is Motley Fool Money.
Jason Hall Welcome to Motley Fool Money with The Hidden Gems team. I'm Jason Hall, filling in for Tyler Crowe today. I'm joined by Fool contributors that you guys hear a lot from here, John Quast, Matt Frankel. Before we get into the show, though, guys, there's something important I need to talk about. If you've been feeling uneasy about your portfolio lately, Let's be honest, who hasn't? Our CEO, Tom Gardner, went live earlier today with something he's been building for months to address exactly that. If you haven't seen it yet, go to epicportfolio.fool.com. If you're already an Epic member, check your account. You might already have access. Again, that website, it's epicportfolio.fool.com. Let's get into it here.
We've already talked about Goldman Sachs earlier this week. Matt, you're back from a Motley Fool event. You're one of our bank experts here. You've owned Bank of America longer than any other bank in your portfolio. It's also become the largest bank holding that you have. How was the quarter?
They had a pretty excellent quarter. They beat estimates on both the top and bottom lines and pretty much everywhere else throughout their business. Their earnings were up 17% year-over-year. That interest income beat expectations, trading revenue, investment banking fees, asset management fees, they were all better than expectations, all increased. Equities trading was really strong, grew 30% year-over-year. It's not surprising given how volatile the market's been. People trade more when the market's volatile. Investment banking fees grew 21%. We hear about the upcoming wave of IPOs. A lot of them have hired investment banks. So, that's not too surprising. Net interest income was up by 9%. All the profitability metrics, return on equity, things like that, showed great improvement.
The only spot where they missed expectations was fixed income trading, but interest rates were pretty stable and predictable. That's relatively minor, considering that the bank outperformed its expectations virtually everywhere else.
We saw Goldman Sachs reported the same thing in FICC. That seems more of an industry trend and not a bank-specific trend.
Right. So, I think it was kind of expected going into it, because Bank of America was, I think, the No. 3 or 4 bank to report. I mean, the best news might be that consumers seem to be holding up well, not even a company-specific thing. The bank's provision for credit losses was about $200 million less than expected. Brian Moynihan, the CEO, he said that credit quality is good and improving. And the numbers back that up, the bank's net charge-off ratio, it improved six basis points year over year to 0.48%.
Matt, Jason and I were on the show earlier this week, and we were looking at Goldman Sachs. We saw that Goldman Sachs actually increased credit loss reserves. Is this different from that, or can you just explain it for those of us who don't follow the banking industry as closely as you do?
The reserves are the total amount they're holding in the tank for anticipating loans to default. The provision is really what they're putting aside this quarter. It is the same essential concept. They're setting money aside. If consumers default, it's not like it's coming out of their pocket, this is a pool of money that's already there. It's something that every bank has, and it's really an indicator of where they see the consumer weakness or strength.
Matt, we also heard from Schwab, which is a bank, but it's probably better known to most non-Schwab bank customers as a brokerage and investing services provider. Specifically, the brokerage services, how did that business do?
Just like I mentioned with Bank of America, trading activity was very elevated. Not surprising. The market was down a lot in the first quarter, especially after the Iran conflict started. We saw average trading volume up 34% year over year on a daily basis.
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