Big US banks set for $31bn quarterly revenue as Wall Street enterprise booms | USAEMALL.com

Unlock the White House Watch newsletter for free

Your guide to what the 2024 US election means for Washington and the world

America’s biggest banks are set to post a jump in profits to $31bn for the final three months of 2024 as Donald Trump’s election victory sparked a jolt of trading activity on Wall Street and dealmaking activity picked up.

Earnings of the biggest six US banks by assets — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — are forecast to have increased 16 per cent from the same quarter a year earlier, after excluding nearly $10bn in payments lenders made to the federal deposit insurance fund at the end of 2023 to cover the costs of that year’s regional bank failures, according to data from Bloomberg.

The bumper profit expectations follow a rise in market volatility in the run-up to the November 5 US election, and then a big rally in equities in the weeks that followed. Several big banks, including Citi and JPMorgan, said late last year higher trading activity had boosted their revenues.

“It was a very strong end of the year for capital markets,” said Scott Siefers, a banking analyst at Piper Sandler.

“As it relates to [profit] margins, we are in a Goldilocks situation, where banks are benefiting from higher rates at the long-end of the curve, but have been able to take down deposit costs with the Fed [cuts].”

Investment banking fees are expected to have increased nearly 30 per cent for the big six banks to nearly $8.4bn, as corporate borrowers used a dip in interest rates in autumn to issue debt and a rising stock market led to increased equity offerings, as well as a modest pick-up in mergers and acquisitions.

Overall, it was the best three-month period for investment bankers in three years, but fees were still 50 per cent below the $13bn the banks were collectively generating a quarter in 2021, when there was a frenzy of deals in the middle of the pandemic.

For trading, the six large banks are collectively estimated to have booked nearly $24.5bn in revenue from their markets businesses.

Bank shares have already risen sharply in recent months, with the broad KBW banks index up 33 per cent in the past year, including 10 per cent since Trump’s election victory. Goldman Sachs’ stock price has jumped 50 per cent in the past year, while shares of Wells Fargo and JPMorgan are up more than 40 per cent.

Some analysts worry that these gains will have set a very high bar for big banks to reach when they report fourth-quarter earnings this week.

“You could see a sell-off even if the numbers are reasonably good,” said Christopher Whalen, a veteran industry analyst, who is the head of Whalen Global Advisors. “The stocks have given a little back since the November rally, but the market values still represent exuberance.”

The jump in the shares of the nation’s six largest banks have put the stocks at their highest valuation — a forward price-to-earnings multiple of 13 — in years, excluding 2020, when a temporary dip in earnings inflated the figure.

Investors are betting that lower taxes and lighter regulation under a Trump administration will lead to renewed loan growth for all lenders, and a continued jump in lucrative advisory fees for the investment banking divisions of the nation’s largest banks as corporate combinations come under less Washington scrutiny.

Reduced regulatory requirements for the banks themselves may give them the ability to either take more risk or boost shareholder payouts through buybacks or dividends, both of which would boost investor returns.

Several bank analysts warned, however, that Trump’s policies, including tariffs, could reignite inflation and leave short-term rates higher for longer than many anticipated just a few months ago. In a sign of these concerns, strong US jobs data, released on Friday, sent short-term Treasury yields soaring as investors trimmed expectations for Federal Reserve rate cuts this year.

The prolonged period of elevated short-term interest rates has forced banks to pay up for deposits, which has eaten into lending profits. Net interest income for the big banks, which peaked more than a year ago, is expected to have fallen again in the fourth quarter.

Profits from lending at Wells Fargo, for instance, are expected to have fallen more than 8 per cent from a year ago. JPMorgan and Citi are also forecast to notch up a dip in lending profits, down 5 per cent and 3 per cent respectively.

“The banks have a lot to deliver relative to expectations,” said Charles Peabody, who is the head of independent research firm Portales Partners. “I am not worried about this quarter, but I do worry about 2025 because relative to the risks that are developing the optimism is too strong.”