BoFA And Morgan Stanley Earnings Plunge, Beat Estimates [Analysis]

It’s been a busy week for the big banks with the release of their first quarter earnings reports. The trend has been earning declines while beating estimates.

For both Bank of America Corp (NYSE: BAC) and Morgan Stanley (NYSE: MS) their incomes took a fall during the first quarter, but without one-time accounting charges, their earnings did exceed analyst estimates.

At the time of this writing, Morgan Stanley is trading higher while Bank of America is slightly off after jumping out of the starting gate to trade higher. Morgan Stanley’s stock did the same but has maintained positive territory.

Bank of America’s Numbers

For Bank of America, its first quarter net income dropped to $653 million ($0.03 cents per share), from the previous year’s $2 billion ($0.17 cents per share).

The bank accounted most of the slide to a $4.8 billion charge from narrower credit spreads, according to the Los Angeles Times. If the bank had not incurred this, its profit rose 40 percent to $3.7 billion ($0.31 cents per share) as compared to last year’s $2.6 billion ($0.23 cents per share).

Revenue declined 17 percent to $22.5 billion from a previous $27.1 billion. The company said of its revenue numbers that “improving global markets sentiment as the European debt crisis stabilized coupled with favorable news regarding the U.S. economic environment” helped raised its revenue for its fixed income, currency and commodities (FICC) arm by $432 million.

The bank’s global trading income jumped to $798 million after a fourth quarter loss of $768 million but compared to last year’s figures with a $1.39 billion profit, it continues to lag behind.

Bad-loan provisions dropped 37 percent–a figure last seen in mid-2007 thanks to the improvement of credit quality.

Also for the first quarter, bank extended its $102 billion of credit with $66.6 billion coming from commercial non-real estate loans, $15.2 billion from residential mortgages (84 percent for refinances) and $4.4 billion for cards of consumers in the U.S. and small businesses, reported the Los Angeles Times.

New credit card accounts increased 19 percent.

In a press release by the bank, Chief Executive Brian Moynihan said, “Our strategy is paying off: With the economy steadily improving and because of the work we have done to strengthen and simplify our company, we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year.”

Morgan Stanley’s Numbers

Meanwhile, Morgan Stanley reported their own revenue decline to $6.9 billion as compared to last year’s $7.6 billion; they also noted an accounting charge of a $2 billion credit.

Without this, revenue increased 14 percent to $8.9 billion, up from $7.8 billion. Revenue from the investment banking arm jumped 33 percent to $5 billion.

The bank reported a $78 million loss ($0.05 cents per share)  as compared to earnings of $984 million ($0.51 cents per share) in the previous year. With the accounting charge, the profit was $1.4 billion ($0.71 cents per share).

Similar to Bank of America, Morgan Stanley saw a rise in trading revenue even though its asset-management numbers were lagging.

Chief Executive James P. Gorman said in a press release, “This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008 and is in a significantly stronger position.”

Morgan Stanley added that it put aside $4.4 billion for employee compensation and benefits, representing a 3 percent rise from the previous year. This figure included severance pay for laid off workers in January, with the 62,000 employees receiving a $74,000 average payout.

This compares to rival Goldman Sachs Group Inc. figures: a 16 percent decline from the previous year and the 32,000 employees receiving a $135,000 average. In addition,  JP Morgan Chase & Co. saw its numbers shrink 12 percent to $2.9 billion, with its 26,000 workers individually receiving about $113,000.