Goldman Sachs, Morgan Stanley post 39.5% revenue jump, Europe banks next

Goldman Sachs revenue surged 39.5% and Morgan Stanley revenue rose 27.1% in Q2, beating consensus by wide margins and triggering analyst upgrades.

"The results were largely positive, with all four banks beating EPS and pre-provision net revenue expectations," the Jefferies team said in a note. "Net interest income growth remained healthy, supported by strong balance sheet momentum."

Goldman Sachs posted record first-half 2026 markets revenue, driven by record equities revenues and all-time-high prime balances. The bank's investment banking backlog hit a five-year high, supporting continued earnings momentum. Morgan Stanley's revenue topped estimates by 8.7%. Jefferies raised its earnings estimates for Goldman Sachs by 9% for the second half of 2026 and 8% for fiscal 2027.

The strong results suggest the investment banking recovery may extend beyond Wall Street. Shares of Goldman Sachs rose 9.9% following the results, while Morgan Stanley fell 4.1%. European lenders reporting in the coming weeks will test whether the momentum is shared across the Atlantic.

The broader banking sector also delivered strong Q2 results. Bank of America, Citigroup, and Wells Fargo all beat earnings expectations, supported by net interest income growth, fee income, and capital markets activity. Bank of America raised its full-year 2026 operating leverage guidance to 300-400 basis points from above 200 basis points previously, while its return on tangible common equity reached 17%, above the 16.1% Jefferies had estimated.

Goldman Sachs's record first-half performance was fueled by accelerating large-cap M&A and a five-year-high backlog. The bank's equities business posted all-time-high prime balances, while advisory revenue benefited from a pickup in deal activity. Jefferies set a price target of $1,299 for Goldman Sachs, implying roughly 20% upside from current levels.

Morgan Stanley's results were driven by strength in investment banking and sales and trading, though the stock traded lower after the release as its net interest margin outlook fell short of expectations. The bank's wealth management revenue also contributed to the beat.

The strong earnings season has prompted analysts to look for the next beneficiaries. European investment banks with large capital markets operations could see similar tailwinds from the same macro factors driving Wall Street results: strong trading activity, improving investment banking fees, and healthy client engagement. The Jefferies team noted that capital markets were a standout performer across all four US money center banks, driven by strong trading activity and improving investment banking fees.

The guidance raises across major US banks suggest management expects the dealmaking recovery to continue. Investors will watch European bank earnings in the coming weeks for confirmation that the trend is global.

This article is for informational purposes only and does not constitute investment advice.