A $1.2 billion fine has been imposed, and stock trading will look at the second data point—Bank of America and Morgan Stanley will take over tonight

Introduction: After four banks submitted their reports last night, the market has seen clear structural signals. Goldman Sachs' stock trading is booming, while JPMorgan Chase's fixed income has cooled, dragging down revenue below expectations, and Wells Fargo has significantly increased its provisions. Bank of America and Morgan Stanley will take over tonight, needing to verify two judgments: whether the increase in provisions is an industry 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 when the earnings report week for the five major banks concludes.

1. Bank of America: Operational Signals Beyond the Fine

Bank of America's earnings report has a special variable. The Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury announced a $1.2 billion fine against the bank, marking the third-largest fine in Treasury history. Regulators stated that the bank failed to report over $5 billion in suspicious transactions for years, with more than $1 billion involving high-priority risks such as national security. The Treasury separately announced a $11.6 million settlement for sanctions violations. As part of the settlement, Bank of America admitted to intentionally violating the Bank Secrecy Act. The bank stated it has invested billions in compliance, and the fine will result in a $1.2 billion non-tax-deductible expense for Q3, reducing earnings per share by about 17 cents (according to the Treasury announcement and media reports).

The fine itself is a one-time expense; the real focus should be on the operational data beyond the fine. Moynihan previously estimated that Q3 investment banking fees would decline by at least 10%, and sales and trading income would remain roughly flat, a relatively conservative guidance contrasting with Goldman Sachs' booming stock trading last night. The market's core focus for Bank of America is net interest income: management has maintained its growth guidance for fiscal year 2026 at the upper limit of 6% to 8%, while JPMorgan Chase reported net interest income of $27.1 billion, a year-on-year increase of 13%, and raised its full-year guidance to $106.2 billion. If Bank of America delivers similarly, the industry-wide conclusion of "record interest income" will gain further support; if it diverges, the sector narrative will need to be rewritten. According to Bloomberg, Bank of America's expected stock trading income is about $2.6 billion, the smallest among the five major banks. If it falls below expectations and combined with fixed income pressure, trading could become a drag.

2. Morgan Stanley: The Verification Value of Stock Trading Income

Morgan Stanley's consensus expectation is an earnings per share of about $2.94 and revenue of about $20 billion (summarized by Investing.com, with slight variations between different media reporting between $19.93 billion and $20.19 billion). According to Bloomberg, analysts expect its stock trading income to be about $4.9 billion, ranking second among the five major banks, only behind Goldman Sachs' actual value of $6.441 billion yesterday.

The verification value of this number lies in whether Goldman Sachs' year-on-year increase of 72% in stock trading income is an industry-wide phenomenon. If Morgan Stanley is similarly strong, the narrative of "strong stocks, weak fixed income" will receive a second data point supporting the industry trend. If it is weak, combined with JPMorgan Chase's fixed income declining by 4% year-on-year (the first decline in over two years), the logic of trading income growth will need to be rechecked. Another background is the expectation gap; UBS downgraded Morgan Stanley's earnings per share forecast by 13% to $2.60 before the earnings report, creating about a 12% gap with the market expectation of $2.94. The actual number will provide a comparison that evening. Wealth management is the core business that distinguishes Morgan Stanley from other major banks; if its net interest income outlook is slightly downgraded, it reflects the extent to which rising deposit costs are transmitted to wealth management (as reported).

3. Three Confirmed Facts from the First Half

Interest income is still at record levels. JPMorgan Chase, Citigroup, and Wells Fargo collectively reported net interest income of $56.5 billion, setting a record for the fifth consecutive quarter, with JPMorgan Chase raising its full-year guidance for 2026 to $106.2 billion. The support from high interest rates for interest income has not yet ended; whether the spread can widen depends on the slope of deposit costs.

Trading is shifting gears. Goldman Sachs' stock trading income increased by 72% year-on-year to $6.441 billion, while fixed income at $3.47 billion fell short of expectations. JPMorgan Chase's fixed income declined by 4% year-on-year, marking the first drop in over two years, while stock trading income increased by 49% year-on-year to $4.95 billion. According to Bloomberg, the total expected trading income for the five major banks in Q3 is about $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 for the three banks year-on-year were -19%, +6%, and +51%, respectively, but JPMorgan Chase's net increase was only $540 million, and Wells Fargo's net write-off was only about $29 million, both reflecting a "safety cushion" rather than a deterioration in bad debts. If Bank of America and Morgan Stanley also show moderate increases in provisions while write-offs remain stable, the interpretation that "the credit cycle has not turned" continues to hold. If either bank shows significant increases in provisions and overdue rates rise simultaneously, the market's judgment on credit costs will need to be rechecked.

First, whether the increase in provisions has industry-wide significance. If all five banks increase provisions while write-offs remain stable, it indicates proactive cushioning. If increases in provisions and overdue rates rise together, it signals a directional change in the credit cycle.

Second, the volume and price structure of net interest income. Both deposits and loans are still increasing, but Wells Fargo's net interest margin of 2.43% remains flat with Q2; Bank of America's reading will verify the sustainability of "volume compensating for price" under high interest rates.

Third, the sustainability of stock trading income. Morgan Stanley's expected $4.9 billion is a key second data point. The resilience or decline in capital market activity directly determines the logic of trading income growth.

Fourth, signals of cooling capital market activity. According to research reports, Bank of America analyst Poonawala believes that capital market activity in the second half of 2026 will be significantly weaker than in the first half (this view 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 a decline of about 20% (approximately $10 billion) compared to Q2, with the cooling trend already anticipated; the divergence lies in the slope of the cooling.

Based on the overall market and public information, one possible scenario is that Bank of America operates steadily after excluding the fine, and Morgan Stanley's stock trading continues to be strong, confirming the structural conclusions for the five major banks (record interest, trading shift, stable credit). If either bank diverges significantly, the cautious expectations and recovery space accounted for in the sector since August will need to be rechecked.

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Data Explanation

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

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

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

• Morgan Stanley expectations: summarized by Investing.com (with slight differences in statistics from various media). UBS downgraded the forecast as referenced in research reports.

• Market data: Bank of America's after-hours decline is as reported. The closing prices of the six major banks are from market interface data.

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