News

U.S. banks are poised to report robust fourth-quarter earnings this week, bolstered by a surge in investment banking and trading revenues. The sector has benefited from resurgent dealmaking and bond underwriting activities, with data from Dealogic indicating a 26% year-over-year increase in investment banking fees. Trading revenues, projected at $224.6 billion for 2024 by Coalition Greenwich, are set to surpass the previous record, highlighting strong demand in volatile markets. JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Goldman Sachs (GS) will report results Wednesday, followed by Bank of America (BAC) and Morgan Stanley (MS) on Thursday.

A steeper U.S. Treasury yield curve has further supported banks' bottom lines, enabling them to borrow at lower short-term rates while lending at higher long-term rates. This dynamic, coupled with eased pressure on deposit costs due to the Federal Reserve's rate cuts, has improved net interest income (NII) across the sector. Analysts forecast mid-single-digit growth in NII for 2025, underpinned by favorable financing conditions and improved capital market activity. "Valuations and financing conditions have improved, setting the stage for sustained growth in divestitures and private equity deals," said Richard Ramsden, banking analyst at Goldman Sachs.

Market Overview:

• Investment banking fees surged 26% year-over-year in Q4 2024, driven by dealmaking and bond underwriting.


• Trading revenues reached a record $224.6 billion in 2024, fueled by market volatility.


• A steeper yield curve enhanced banks' interest income from loans and deposits.

Key Points:

• JPMorgan, Wells Fargo, and Goldman Sachs are among the banks reporting this week.


• Net interest income is expected to grow mid-single digits in 2025.


• Banks have improved capital levels and refrained from adding significant reserves.

Looking Ahead:

• Investors will focus on executive commentary regarding 2025 fee and NII growth projections.


• Private-equity-backed deals are expected to gain momentum this year.


• Solid asset quality and healthy capital markets set a favorable outlook for U.S. banks.

Bull Case:

• Investment banking fees surged 26% year-over-year in Q4 2024, driven by resurgent dealmaking and bond underwriting, highlighting strong demand for capital markets services.


• Record trading revenues of $224.6 billion in 2024 underscore banks’ ability to capitalize on market volatility, boosting earnings potential.


• A steeper U.S. Treasury yield curve has improved net interest income (NII), enabling banks to expand lending margins and enhance profitability.


• Improved capital levels and limited reserve additions reflect strong balance sheet management, positioning banks for sustained growth in 2025.


• Private-equity-backed deals and divestitures are expected to gain momentum, providing further tailwinds for investment banking revenues.

Bear Case:

• Market volatility driving trading revenues may subside in 2025, leading to a potential slowdown in this key earnings driver for banks.


• Despite improved fundamentals, macroeconomic uncertainties and potential shifts in Federal Reserve policy could pressure margins and lending activity.


• Higher regulatory scrutiny and capital requirements could limit banks’ ability to deploy capital efficiently, constraining growth opportunities.


• Mid-single-digit NII growth projections may fall short if deposit costs rise faster than anticipated, eroding net interest margins.


• A slowdown in dealmaking or private equity activity due to economic headwinds could temper the momentum seen in investment banking fees.

Despite a challenging macroeconomic backdrop, the banking sector enters 2025 with improved fundamentals, including stronger capital levels, a favorable yield curve, and steady asset quality trends. Analysts anticipate mid-to-high single-digit growth in total fees, reflecting optimism for continued momentum in investment banking and trading.

The forthcoming earnings season will provide insights into how banks are navigating evolving market conditions, including the Fed's monetary policy stance and broader economic trends. With resilient capital markets and robust earnings forecasts, U.S. banks appear well-positioned for sustainable growth in the year ahead.

This article was originally published on Quiver News, read the full story.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.