Topline
Morgan Stanley and Bank of America were the latest major banks to report solid earnings on Wednesday, though both firms reported a smaller increase in expenses than rivals like JPMorgan Chase and Goldman Sachs, which faced surging compensation costs.
Only a few banks have managed to keep a lid on rising expenses.
Key Facts
Unlike many of its rivals, Morgan Stanley largely kept a lid on compensation expenses, which were below analyst estimates and remained virtually unchanged from a year earlier at $5.49 billion.
Bank of America, meanwhile, saw a slight rise in noninterest expenses to $14.7 billion—6% higher than a year ago—due to higher pay for employees.
Both firms somewhat bucked the trend with their fourth quarter earnings on Wednesday with a smaller increase in expenses than rival banks, several of which have disclosed skyrocketing compensation costs.
Goldman Sachs said Tuesday overall operating expenses surged to $7.27 billion last quarter, 23% more than a year ago thanks to “significantly higher” pay for bank employees—with compensation costs alone jumping 31% to $3.25 billion due to “wage inflation.”
JPMorgan Chase reported last Friday that expenses jumped 11% to $17.9 billion, with the bank also slashing guidance on company-wide returns due to “headwinds” including wage inflation and other “inflationary pressures.”
Citigroup, meanwhile, saw a steep drop in profits—with net income falling 26% in the fourth quarter, while operating expenses increased 18% from a year ago to $13.5 billion amid “competitive pressure” on wages and pay.
Surprising Fact:
Wells Fargo is spending less. Unlike rivals which saw surging costs, Wells Fargo’s non-interest expenses for the quarter came in at $13.2 billion, down nearly 11% from a year ago thanks to ongoing cost-cutting measures, the bank said Friday.
Key Background:
Morgan Stanley and Bank of America saw their stocks rally on Wednesday, each rising around 1.5%. Shares of other major banks weren’t so lucky in recent days, however, getting hit immediately after earnings. JPMorgan Chase saw its stock fall nearly 6% on Friday, while Citigroup fell over 2%. Wells Fargo was the exception, with shares jumping nearly 3% that day after its earnings beat. Shares of Goldman Sachs, meanwhile, fell 7% on Tuesday after reporting surging expenses and compensation for employees.
Further Reading:
Stock Market Selloff Continues As Rates Surge, Goldman Sachs Falls 7% (Forbes)
Here’s Why Big Bank Stocks Like JPMorgan Are Struggling Despite Solid Earnings (Forbes)
Here’s Why Stocks Are Rallying Despite Another Dire Inflation Report (Forbes)
Stocks Surge After Powell Says Fed Not Afraid To Raise Rates Further If Higher Inflation Persists (Forbes)
Source: https://www.forbes.com/sites/sergeiklebnikov/2022/01/19/heres-how-much-more-big-banks-spent-last-quarter-amid-rising-inflation-pressures/