The market yield for 10-year U.S. treasury bonds has risen over 100 basis points since the end of April, as investors have anticipated a tapering of monthly bond purchases by the Federal Reserve, which have continued at a pace of $85 billion each month since last September.
The widening yield curve will over time have a positive effect on net interest margins. In the meantime, the banking industry's unrealized gains on available-for-sale securities, which had risen steadily as long-term rates declined, nearly evaporated during the second quarter.
Unrealized gains on AFS securities were down by $51.1 billion, or 89% from the previous quarter, according to the FDIC. " Unrealized gains and losses on available-for-sale securities do not affect current earnings, but they do have implications for future earnings if the securities are sold," the agency said.
Credit leverage continued to be a major theme for the industry, with combined provisions for loan loss reserves declining to $8.6 billion, from $11 billion the previous quarter and $14.2 billion a year earlier. The FDIC said that provisions for reserves were at their lowest point since the third quarter of 2006.
The industry's combined loan loss reserves declined by $6.4 billion during the second quarter.
The FDIC said that banks' combined non-interest income grew to $66.9 billion in the second quarter from $66.5 billion the previous quarter and $60.2 billion a year earlier.
Banks continued to see success in their cost-cutting efforts, with the industry's combined efficiency ratio improving to 58.76% during the second quarter, from 58.92% during the first quarter and 61.29% during the second quarter of 2012. The efficiency ratio is, essentially, the number of pennies of expenses incurred for each dollar of revenue.
Morgan Stanley's shares have returned 37% this year following a return of 28% for 2012. The shares trade just below their reported June 30 tangible book value of $26.27, and for 10 times the consensus 2014 earnings estimate of $2.58 a share, among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $2.92.
for a review of Morgan Stanley's second-quarter results, which included the firm's acquisition of
remaining stake in the companies' retail brokerage joint venture.