Good Riddance

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What's going on?

Bank of America (BoA) and Morgan Stanley announced on Wednesday that their earnings both came in better than expected last quarter, but this is where the two rivals part ways.

What does this mean?

BoA and Morgan Stanley will be thrilled the dealmaking boom hasnt let up: their investment banking segments which take a fee from every deal they work on made 26% and 6% more in revenue last quarter than the same time in 2020. BoA topped that up with the $850 million it originally set aside in case pandemic-bruised customers couldnt cover their loans, while Morgan Stanley celebrated a bumper 59% uptick in revenue in its investment management business. Not even slowing trading revenuecould bring them down: BoA and Morgan Stanleys profits climbed by a better-than-expected 28% and 9% respectively.

Why should I care?

For markets: Dont bank on dealmaking.
Its easy to lump US banks together, but they arent all cut from the same cloth: Morgan Stanley, for example, doesnt have a retail banking business like BoA does. That could make all the difference as interest rates start to rise, since itll allow BoA to charge more on the loans it offers. Thats a much more stable business model, especially as theres no guarantee companies will keep striking deals when it becomes more expensive to borrow money. And dont investors know it: BoAs stock has outperformed Morgan Stanleys stock by 9% this year.

Zooming out: Fintechs are taking over.
Still, even BoA will want to watch its back: digital banking app Revolut the UKs second-most valuable fintech company announced on Wednesday that its launching a commission-free stock trading platform in the US, as part of its goal to become a super app capable of managing every aspect of its users finances. Its a good time to make the move: data shows that American retail traders spent over seven times more on stocks last year than in 2019.

Originally posted as part of the Finimize daily email.

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