US Banks Poised to Report Strong Earnings on Dealmaking, Trading Gains

Major US banks are expected to deliver robust earnings reports this week, driven by a surge in dealmaking and trading activities during the fourth quarter of 2024. Key players, including JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs, are set to announce their results on Wednesday, followed by Bank of America and Morgan Stanley on Thursday.

The resurgence of investment banking has been a significant factor in boosting bank revenues. “Investment banking is very upbeat,” noted Richard Ramsden, a banking analyst at Goldman Sachs. He highlighted improving valuations, increased prospects for private equity-backed divestitures through IPOs or sales, and better financing conditions for buyers as contributing factors to the growth.

Rising Revenues

A steeper yield curve for US Treasuries has also bolstered banks’ profits, allowing lenders to benefit from the difference between borrowing at low short-term rates and lending at higher long-term rates. This dynamic has significantly boosted net interest income (NII).

Investment banking fees saw a 26% year-over-year increase in the fourth quarter, fueled by higher deal volumes and strong demand for bond underwriting, according to Dealogic data. Meanwhile, trading revenues reached an estimated record $224.6 billion for 2024, narrowly surpassing the previous high set in 2022, when global markets experienced volatility following Russia’s invasion of Ukraine, according to Coalition Greenwich.

Investor Focus

As earnings season unfolds, investors will closely watch commentary from bank executives on net interest income trends. NII improved in the latter half of 2024, aided by the Federal Reserve’s interest rate cuts, which eased pressure on banks to offer higher rates to retain depositor funds.

“We’re entering the year with a much more favorable outlook for banks,” said David Wagner, portfolio manager at Aptus Capital Advisors. He cited improved capital levels, a steepened yield curve, healthy capital markets, and solid asset-quality trends as indicators of the sector’s strength.

Positive Outlook

Goldman Sachs’ Ramsden predicts mid-single-digit growth in NII across the banking industry in 2025, with total fees projected to rise by mid-to-high single digits.

Analysts also expect banks to retain more earnings rather than increase reserves. “Banks have been cautious and added to reserves over the past year for a slowing economy that hasn’t really occurred,” said Stephen Biggar, analyst at Argus Research. With unemployment remaining low, he added, there’s little need for additional reserves.

The strong performance in trading, investment banking, and interest income highlights a promising start for US banks in 2025, suggesting resilience amid evolving economic conditions.