👀 What's going wrong for banks

What’s going on here?

Bank of America and Morgan Stanley both announced market-pleasing results on Tuesday.

What does this mean?

Morgan Stanley brought $3 billion in profit through the door in the second quarter, up 41% from the year before – and Bank of America brought in $6.9 billion, down 7%. Both were better than analysts expected, but the situation wasn’t all rosy. Morgan Stanley’s wealth management business, which earns based on the amount of assets it has, had a tough time: new business slumped to its lowest ebb since 2020. Meanwhile, Bank of America’s net interest income – the difference between what it earns on loans and what it pays savers – fell. But with the Federal Reserve expected to cut interest rates later this year, that could improve. The bank will be hoping so, as it’s a massive source of profit.

Why should I care?

Zooming in: Missing the mark.

Wall Street neighbors JPMorgan and Wells Fargo both saw their net interest income fall short of analysts’ estimates, so Bank of America’s miss in that department won’t raise too many eyebrows. See, with interest rates sticking above 5%, consumers and businesses have been reluctant to take out loans – a key source of income for banks. Mind you, with rates expected to come down a tad later this year, that should bolster borrowing – and the economy.

The bigger picture: The going rate.

Higher interest rates have sent dollars by the trillions into money market funds in the past few years, with savers happy to earn 5% or more now – a level that’s keeping their savings comfortably ahead of inflation. Even Warren Buffett’s Berkshire Hathaway has flocked to cash and short-term bonds, investing $182 billion at the end of the first quarter alone. What happens next could be interesting: as rates in the US begin to fall, that money could start to move – much of it into stocks.

What’s going on here?

Saudi Arabia is struggling to see through its multi-trillion-dollar makeover.

What does this mean?

Saudi Arabia has some pretty grand ideas wrapped up in its Vision 2030 plan: to ditch its reliance on oil exports, diversify its economy, and increase public services. But there have been some bumps in the road, so the country is trimming billions off major projects and shoving others to the back burner. Neom, for one: the futuristic city being developed on the Red Sea coast will get 20% less funding this year than originally intended, and plans for a new airline for the area have been grounded. That’s down to a couple of things going wrong. For starters, foreign investors haven’t been biting: the goal was to raise $100 billion a year by 2030, but they’ve managed only $2.5 billion in the first quarter. What’s more, lower oil prices have made it tough for the country to balance its budget.

Why should I care?

Zooming out: Wakey, wakey.

Saudi Arabia can’t afford to hit the snooze button on its makeover forever. EVs will soon overtake traditional gas-guzzlers – and that’s a problem for the country, given that oil sales still make up about 70% of its export profit and half of its economy. So the kingdom has its fingers crossed for a jump in the slick stuff’s price. In the meantime, it’s been racking up debt to cover its bills, quickly becoming the biggest issuer of new bonds among the world’s emerging markets.

The bigger picture: This town ain’t big enough…

There’s a showdown going on between the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), about when oil demand will peak. OPEC is banking on 2045, while the IEA is betting on the decade’s end. If the IEA’s crystal ball gazing is correct, Saudi Arabia had better get a move on with its grand plans.