Profits and revenue rose at Bank of America (BAC) during the first quarter while falling at Goldman Sachs (GS), offering a diverging look at how two financial giants fared during a challenging period for the banking industry and the markets.
Goldman’s profit was roughly $3.1 billion in the quarter ending March 31, down from $3.83 billion a year ago as several of its mainstay businesses sputtered. Investment banking revenue was down 26%, as new deals slowed, and advisory fees were down 27%. Revenues from fixed-income trading, another traditional Goldman strength, also fell.
Goldman’s stock was down more than 3% in pre-market trading.
Bank of America, which has a much bigger consumer lending business than Goldman, reported earnings of $8.2 billion that were up 15% from the first quarter of 2022. Its stock was up 2.6% in pre-market trading.
One key driver of earnings was its net interest income, which is the difference between what a bank earns on its loans and pays out on its deposits.
The Federal Reserve’s aggressive rise in interest rates over the past year boosted this measure of income for Bank of America and other giant consumer banks, including JPMorgan (JPM) and Wells Fargo (WFC), because it allowed them to charge more for their loans. Bank of America’s net interest income was up 25% compared to the year-ago quarter.
The concern now is that those margins could begin to fall across the industry as banks begin to pay more aggressively for deposits and lure new customers with higher rates. Bank of America’s net interest income stayed roughly the same from the fourth quarter, dropping by just $233 million. But the company did revise its forecast, saying it now expects less income from this measure going forward for every 100 basis point increase in rates.
Bank of America’s interest expense rose by $12.8 billion from the year-earlier period and $3.8 billion from the fourth quarter, a sign that the bank is paying considerably more for its deposits.
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Even before the turmoil in March, lenders big and small had been losing depositors to money market funds that were willing to offer higher yields. Bank of America couldn’t escape that trend. Its deposits at the end of the quarter were $1.9 trillion, down $20 billion from the end of 2022 and $162 billion from a year earlier.
“Banks do have a deposit conundrum,” Stephen Biggar, director of financial services research for Argus Research, told Yahoo Finance on Monday.
Goldman experienced a similar outflow. Its deposits were down 3% from a year ago and the last quarter as customers pulled $11.6 billion from Goldman’s banking division during the first three months of the year. The bank’s deposit balances at the quarter’s end were at their lowest level since the fourth quarter of 2021.
Goldman has been reevaluating its foray into consumer banking and seeking strategic options for that part of its business. Its results released Tuesday included a loss of about $470 million related to a partial sale of a loans portfolio.
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