What's going on?

Bank of America and Morgan Stanley rounded out the US banks� second-quarter updates on Wednesday and Thursday respectively, with both reporting higher-than-expected profits.

What does this mean?

Morgan Stanley�s relatively stable wealth and investment management businesses make up over half the company�s revenue, and they brought in more than anticipated last quarter. That helped offset worse-than-expected trading revenue, which declined by more than their rivals�.


Bank of America, the country�s second-biggest, had its �retail� business � customer deposits and loans � largely to thank on Wednesday for its record-setting second-quarter profit. It benefited from rising demand for mortgages and a better �credit quality� than investors were braced for � meaning the bank didn�t need to put as much money aside to cover any forthcoming defaults, boosting its earnings.

Why should I care?

For markets: Not all banks are created equal.

Bank of America, like JPMorgan earlier this week, lowered its forecast for �net interest income� � the difference between the amounts it charges borrowers and pays savers. That�s in large part down to a US interest rate cut expected this month, which will likely decrease the amount of interest Bank of America and its closest competitors charge. Banks that are focused more on trading and advice � like Goldman Sachs � might well watch for the effect of those lower rates on investors and big corporates. They�ll hope lower borrowing costs encourage more dealmaking � and that the related fees line their pockets in the process.

The bigger picture: It�ll probably be worse in Europe.

European banks are likely to report similar trends to their US counterparts in the coming weeks, but chances are their results and outlooks will be bleaker. Eurozone interest rates are already lower than in the US and will probably fall further soon, squeezing the banks� (already humdrum) profits. And with economic growth currently weak, companies might not feel confident seeking out mega fee-paying acquisitions.