Major US Banks Expected to Report Strong Q4 Results Amid Investment Banking Revival
Major US banks are set to report stronger Q4 profits driven by investment banking revival and trading strength. Global investment banking revenue rose 15% to nearly $103 billion, while M&A volumes surged 42% to $5.1 trillion. Citigroup leads earnings growth expectations at 32%, followed by Wells Fargo and Bank of America at over 17% each, while Goldman Sachs may decline 4.9% due to tough comparisons.
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The largest US banks are expected to report stronger fourth-quarter profits when earnings season begins next week, buoyed by a revival in investment banking activity and sustained strength in trading businesses. JPMorgan Chase will kick off bank earnings on January 13, followed by Citigroup, Bank of America and Wells Fargo on January 14, with Goldman Sachs and Morgan Stanley reporting on January 15.
Investment Banking Revival Drives Optimism
Analysts expect the results to reflect improving capital markets conditions, particularly a sharp rebound in mergers and acquisitions and a healthier IPO pipeline. Banking analysts see the fourth quarter as benefiting from a combination of rising deal flow, improving equity issuance and elevated trading activity across commodities, fixed income and equities, creating a favourable setup for investment banking revenues.
Global investment banking performance showed remarkable strength during the period:
| Metric | Performance | Growth |
|---|---|---|
| Global Investment Banking Revenue | Nearly $103 billion | +15% YoY |
| Global M&A Volumes | $5.1 trillion | +42% YoY |
| Industry Ranking | Second-highest level since 2021 | - |
JPMorgan topped overall league tables, while Goldman Sachs led the industry in M&A advisory rankings during the period.
Supporting Factors Beyond Investment Banking
Beyond investment banking, analysts expect earnings to be supported by steady loan growth and improving net interest margins, a key profitability metric for lenders. Banks are likely to benefit from stronger loan demand in the year ahead, supported by a pro-growth policy environment, lighter regulation, lower interest rates and potential changes to capital rules under President Donald Trump.
A resilient US economy should continue to underpin bank earnings, with solid nominal GDP growth expected and no recession factored into forecasts. While a slowdown in job growth could pressure consumer demand and lead to higher delinquencies, analysts believe the impact on bank results would remain limited.
Individual Bank Expectations
Earnings projections vary significantly across major banking institutions:
| Bank | EPS Growth Projection | Key Drivers |
|---|---|---|
| Citigroup | +32% | Capital markets business gains |
| Wells Fargo | +17.5% | Higher net interest income, investment banking pickup |
| Bank of America | +17% | Higher net interest income, stronger trading revenue |
| Morgan Stanley | +8% | Investment banking revenue, wealth management growth |
| JPMorgan Chase | +3% | Stronger investment banking fees, market revenue |
| Goldman Sachs | -4.9% | Tough comparisons with previous year |
JPMorgan Chase is expected to post stronger investment banking fees and market revenue, with management previously guiding for low-single-digit growth in investment banking revenue and low-teens growth in market revenue. Citigroup has indicated that investment banking fees rebounded sharply in the fourth quarter, supported by stronger dealmaking activity. Goldman Sachs may see earnings decline after posting unusually strong profits in the same quarter last year, with gains from equity investments in the asset management division unlikely to be repeated.
Market Performance and Risk Factors
Reflecting improved sentiment, the S&P Bank Index has risen about 3% so far this year after gaining roughly 30% in the previous year. However, inflation remains a key risk heading into the new year, as a combination of tariffs, fiscal stimulus and tax cuts could reduce expectations for interest rate cuts. If rates remain elevated, asset prices could stay firm even as deal activity moderates.
The upcoming earnings reports will provide crucial insights into how effectively major banks have capitalized on the improved investment banking environment and whether the positive momentum can be sustained into the new year.
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