Source: BIT Securities

Intro: After four banks reported last night, the market has seen clear structural signals. Goldman Sachs' stock trading is booming, while Morgan Stanley's fixed income faced challenges affecting revenue expectations, and Wells Fargo significantly increased provisions. Bank of America and Morgan Stanley take the baton tonight, needing to validate two judgments: whether the rise in provisions is an industry-wide trend or individual differences, and whether the strength of stock trading income can continue to the second bank. The answers to these two questions will determine the sector pricing by the time the earnings week for the five major banks concludes.

1. Bank of America: Operational Signals Beyond Fines

Bank of America’s earnings report has a unique variable. The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury announced a fine of $1.2 billion against the bank, the third-largest fines in the Treasury's history. Regulators stated that the bank failed to report more than $5 billion in suspicious transactions over the years, more than $1 billion of which involved high-priority risks such as national security. The Treasury also separately announced a $11.6 million settlement regarding sanction violations. As part of the settlement, Bank of America admitted to willfully violating the Bank Secrecy Act. The bank noted it has invested billions of dollars in compliance, and the fine will account for $1.2 billion of non-tax-deductible expenses in its Q3 performance, reducing earnings per share by about 17 cents (as stated in the Treasury announcement and media reports).

The fine itself is a one-time expense; the real focus should be the operational data outside of the fine. Moynihan previously predicted that Q3 investment banking expenses would decrease by at least 10%, with sales and trading income roughly flat—a relatively conservative guidance compared to the hot stock trading numbers from Goldman Sachs last night. The market's core focus for Bank of America is net interest income: management has maintained the growth projection for fiscal year 2026 at the upper limit of 6% to 8%, while last night Morgan Stanley reported net interest income of $27.1 billion, a 13% year-on-year increase, raising its full-year guidance to $106.2 billion. If Bank of America delivers similarly, it would further support the industry-wide conclusion of “record interest income.” If it deviates, the narrative for the sector will need a different approach. According to Bloomberg compilations, Bank of America’s stock trading income is expected to be around $2.6 billion, the smallest among the five major banks. If it falls below expectations and coupled with fixed income pressures, trading could become a drag.

2. Morgan Stanley: Validation of Stock Trading Income

Morgan Stanley has a consensus expectation of about $2.94 earnings per share and around $20 billion in revenue (Investing.com and others have slight variations in statistics between $19.93 billion and $20.19 billion). According to Bloomberg compilations, analysts expect its stock trading income to be about $4.9 billion, ranking second among the five major banks, only behind Goldman Sachs' actual figure of $6.441 billion yesterday.

The validation value of this number lies in whether Goldman Sachs' stock trading income growth of 72% year-on-year is industry-wide. If Morgan Stanley shows similarly strong results, the narrative of "strong stocks, weak fixed income" will gain a second data point. If it's weak, combined with Morgan Stanley's fixed income decreasing by 4% year-on-year (the first decline in over two years), the logic for increased trading income will need to be re-evaluated. Another context is the expectation gap, as UBS downgraded its earnings per share forecast for Morgan Stanley by 13% to $2.60, creating about a 12% gap from the market expectation of $2.94, revealing where the actual numbers will land on that night. Wealth management is Morgan Stanley's core business distinguishing it from other big banks; if its net interest income outlook is slightly downgraded, it reflects the degree to which increased deposit costs pass through to wealth management (as reported).

3. Three Confirmed Facts from the First Half

Interest income remains at record levels. JPMorgan Chase, Citigroup, and Wells Fargo collectively achieved net interest income of $56.5 billion, marking the fifth consecutive quarter of record highs. JPMorgan also raised its full-year guidance for 2026 to $106.2 billion. The support from high-interest rates on interest ends has not ceased, and whether spreads can widen will depend on the slope of deposit costs.

Trading is shifting gears. Goldman Sachs’ stock trading income rose 72% year-on-year to $6.441 billion, while fixed income at $3.47 billion fell short of expectations. JPMorgan's fixed income declined by 4% year-on-year, marking its first drop in over two years, while stock trading income rose by 49% year-on-year to $4.95 billion. According to Bloomberg compilations, the total expected trading income for the five major banks in Q3 is around $38 billion, still up 13% year-on-year, but significantly down from the record of about $47 billion in Q2.

Credit remains stable but provisions are rising. The provisions among three banks increased by -19%, +6%, and +51% year-on-year, but JPMorgan Chase’s net provision increase was only $540 million, and Wells Fargo’s net write-offs were just about $29 million, both indicating "more safety net" rather than deterioration in bad debts. If Bank of America and Morgan Stanley also see moderate increases in provisions while write-offs remain stable, the interpretation that "the credit cycle has not turned" continues to hold. If either of the two significantly increases provisions alongside an increase in overdue rates, the market's judgment on credit costs will need a re-evaluation.

First, does the increase in provisions have industry-wide implications? If all five banks increase provisions while maintaining steady write-offs, it indicates a proactive cushion. An increase in provisions along with overdue escalations indicates a signal of credit cycle direction.

Second, the volume and price structure of net interest income. Continued growth in both deposits and loans is being realized, but Wells Fargo’s net interest margin of 2.43%, unchanged from Q2, will help validate whether "volume compensates for price" can be sustained under high interest rates.

Third, the sustainability of stock trading income. The expected $4.9 billion from Morgan Stanley is a key second data point. The resilience or retreat of capital market activity will directly determine the growth logic of trading income.

Fourth, signals of cooling in capital market activities. According to research reports, Bank of America analyst Poonawala predicts that capital market activities in the second half of 2026 will be significantly weaker than in the first half (this opinion only represents the judgment of the relevant institution). Analysts expect the total profit of the five major banks in Q3 to be $44 billion, an increase of nearly 9% year-on-year, but about a 20% drop (approximately $10 billion) from Q2; the expected cooling has been well acknowledged, with disagreements on the slope of the cooling.

Synthesizing the market situation and public information, a possible scenario is that Bank of America operates steadily after excluding fines while Morgan Stanley’s stock trading remains strong, leading to a complete confirmation of the structural conclusions for the five major banks (record interest, trading shifts, stable credit). If either of the two deviates significantly, the cautious expectations and repair space built into the sector since August will have to be re-evaluated.

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Data Explanation

• Bank of America Fine: FinCEN announcement and the Treasury Department press release (as reported by Sina Finance, etc.), 2026/10/13-14. The $11.6 million settlement for sanction violations is part of the same announcement.

• Actual Earnings Results: Disclosed by JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo (as reported by CNBC, Bloomberg, Yahoo Finance, etc.), 2026/10/13.

• Trading and Profit Expectations: Bloomberg compilation as reported by Sina Finance, 2026/10/12-13. The total expected profit for the five major banks is $44 billion as reported by Yahoo Finance.

• Morgan Stanley Expectations:Investing.com and others have summarized (various media reports show slight differences in statistics). UBS downgraded its forecast as cited in research reports.

• Market Conditions: Bank of America’s post-market drop is from publicly reported sources. The closing prices of the six major banks are from market interface data.

Disclaimer: This article is for general information and market commentary only and is based on publicly available information up to the time noted in the text. Relevant market data, expectations, and probabilities may change with market conditions. The views and investment strategies cited from third-party institutions, analysts, or others represent only the third parties' viewpoints at particular times and do not represent BIT's views or recommendations. This article does not constitute investment advice, investment research, solicitation, referral, or recommendations for any securities, investment products, or trading strategies, nor should it be the basis for any investment decisions. Financial markets carry risks, and security prices and market performance may fluctuate; past performance and historical market trends do not represent or guarantee future results. Investors should independently assess relevant risks based on their own circumstances and seek professional advice when necessary. BIT's Hong Kong stock trading services are not available to residents of Hong Kong or users from other restricted jurisdictions.

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