Banks Indicate a Contrary Belief on the Consumer

By Presidio Wealth Partners on April 17, 2025

The Major Banks Report First Quarter Results

The major banks have kicked off the first quarter earnings season in style, once again. Bank earnings were solid, and the results all surprised to the upside. In our view, the most interesting item was that loan loss provisions were much less than expected. This is important because it is a direct real-time tell that U.S. consumers and businesses are not stretched, and that delinquencies remain tame. The second surprise was that companies provided guidance for the year, something that most feared would not happen given tariff uncertainties. Bank of America (BAC) and Wells Fargo (WFC) both reiterated their net interest income (NII) guidance for the full year.

Additionally, net interest income (NII) is the number one source of revenue generation for many major banks, and it came in line with expectations. BAC saw NII growth of 9% y/y, Morgan Stanley (MS) and Goldman Sachs (GS) came in line with estimates, and WFC reported a slight miss. These banks have anywhere between 10-70% of their revenues tied to NII (55% for BAC, 70% for TFC, 58% for WFC, 20% for GS, 13% for MS, 64% for C, 50% for JPM), and we have not seen true NII growth for over two years – a tailwind to come. Overall, we were upbeat about bank earnings, which supported our belief that the U.S. consumer is well balanced and that the economy is not headed for a recession.

Earnings Breakdown

Last Friday, MS reported record net revenues of $17 billion, up 17% y/y, with net income up 26% y/y. Its Institutional Securities division also reported a record revenue figure at $9 billion, with equities sales and trading revenue rising 45% y/y, investment banking revenue rising 8% y/y, and fixed income revenues up 5% y/y. Sales and trading desks at the major banks favor market volatility, which increases trading revenues, as was present in the first quarter.

WFC missed on NII and net interest margin (NIM), although it grew earnings per share (EPS) by 10% y/y. To WFC’s benefit, their NII guidance remained unchanged – management is still expecting 1-3% NII growth this year. NII was down 13% due to the impact of lower interest rates, partially offset by lower deposit pricing and higher deposit balances. WFC’s revenue miss was explained by its miss on NII, as 58% of its revenue comes from NII. On the bright side, the company reported strong demand for housing as mortgage loan originations expanded by 26% y/y. As the interest rate environment eases with the Fed likely to cut interest rates later this year, NII should see further expansion.

This week, we heard from GS and BAC. GS sales and trading revenues beat estimates (record equity trading, up 27% y/y) and investment banking revenues declined 8% y/y as the M&A and IPO markets remain stagnant. Importantly, CEO David Solomon stated that M&A activity for 2025 should still be solid and there has not been a fundamental shift in the dealmaking outlook. In fact, he mentioned that deal dialogue has increased along with GS’s deal backlog. Similar to the other banks, BAC saw strong trading revenues and weaker investment banking fees, with NII growing 9% y/y – one of the strongest showings across these four banks. 

Consumer and Economic Outlook

Across the four earnings reports we listened to, the major banks did not report seeing a slowdown in consumer activity, nor did they protect against a potential weakening consumer. MS increased its provision for credit losses in its wealth management division by $44 million but stated that this was due to residential mortgages related to the California wildfires, not deteriorating consumer activity. WFC stated that consumers have remained resilient with stable debit and credit card spending patterns, contrary to what market pundits have stated over the previous number of weeks regarding the consumer. Debit card spending was up 4% y/y, which was in line with fourth quarter growth rates. The bank’s allowance for credit losses was down $84 million from the previous quarter, and commercial net loan charge-offs decreased $192 million from the previous quarter. WFC’s CFO stated that although the bank has not seen evidence of weakness in their clients or commercial portfolios, they made modest adjustments to reflect the potential economic weakness that could develop. Additionally, deposit flows for consumer and commercial clients have been in line with seasonal trends, and delinquencies have leveled off at historical norms.

GS and BAC echoed similar sentiments. GS’s provision for credit losses declined 10% y/y and 18% q/q, and BAC’s provisions came in below estimates. Looking ahead, GS predicts the U.S. economy will have a soft landing with continued moderate growth, gradual easing of inflation, and a low unemployment rate, with the consumer continuing to be resilient. According to BAC, consumer spending has maintained consistent y/y growth, and combined credit and debit card spending was up 4% y/y. BAC’s CEO Brian Moynihan stated that business clients have been performing well, and consumers have shown resilience, continuing to spend and maintain healthy credit quality.

Overall, these banks were upbeat on the health, spending habits, and outlook for the U.S. consumer. Delinquencies and loan losses are not out of the ordinary, and provisions for losses are declining. The banks are well-equipped to withstand a downturn with more than enough capital to support losses.

The next catalyst will be the Basel III endgame rules to be relaxed, which will free up capital so that the banks can then increase their share repurchases. We remain constructive on this sector. 

Chart 1: BAC’s Breakdown of Credit and Debit Spending in Q1[1]

[1] Source: Bank of America. As of April 15, 2025.