US banks will most likely report higher earnings this week, boosted by vigorous dealmaking and trading in the fourth quarter. The six largest US lenders have profited from an uptick in investment banking in recent months. JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs will release their results on Wednesday, followed by Bank of America and Morgan Stanley on Thursday.
Steepening Yield Curve Boosts Lender Profits
A steeper yield curve for U.S. Treasuries is set to enhance lenders’ profitability. Banks can borrow at lower short-term rates while lending at higher long-term rates, thereby increasing their net interest income (NII). Investors are closely monitoring NII performance, which improved in the latter half of 2024. The Federal Reserve’s rate cuts eased pressure on banks to offer higher deposit rates, further supporting their income.
Revenue and Trading Surge
Revenue from investment banking fees soared 26% year-over-year in the fourth quarter, driven by rising deal volumes and robust demand for bond underwriting, according to Dealogic data. Meanwhile, trading revenues hit a record $224.6 billion in 2024, slightly surpassing the previous peak in 2022 when market volatility spiked following Russia’s invasion of Ukraine.
The investment banking sector is experiencing a surge in activity, with analysts forecasting continued growth for 2025. Goldman Sachs banking analyst Richard Ramsden highlighted optimism in the market, noting an expected uptick in private-equity-backed deals. “Valuations have improved, prospects for divestitures, either through IPOs or sales, have strengthened, and financing conditions for buyers are more favorable,” Ramsden stated.
Healthy Capital Markets and Asset Quality
David Wagner, portfolio manager at Aptus Capital Advisors LLC, painted a positive picture for banks in 2025. “Capital levels are much improved, the yield curve has steepened, capital markets are healthy, and asset-quality trends remain solid,” he noted. With economic conditions stabilizing and employment rates staying low, banks are expected to hold off on adding significant reserves for potential downturns. Stephen Biggar, an analyst at Argus Research, emphasized that the cautious reserve buildup in 2024 may not be necessary going forward.
Mid-Single-Digit Growth Expected
Ramsden projects mid-single-digit growth in NII across the industry and mid-to-high single-digit increases in total fees for 2025. Lenders are also likely to retain more earnings as they reduce contributions to rainy-day funds, reflecting confidence in a resilient economy.
As private equity activity accelerates and financing conditions remain favorable, the investment banking sector is poised for a strong year ahead. The combination of improved valuations, a steepened yield curve, and robust capital markets underscores a promising outlook for the industry.
