NEW YORK (Reuters) – Profits at some of the largest U.S. lenders rose in the fourth quarter as dealmaking picked up and trading was boosted by strong stock markets, leading to a rally in bank stocks on Wednesday.
The market environment was favorable for the banks. Stock markets have soared, with the S&P 500 up 23.3% through 2024, while deal volumes have risen and strong demand for bonds has pushed up investment banking costs.
Shares of the banks that reported profits on Wednesday rose between 5.9% for Goldman Sachs and 0.9% for JPMorgan Chase. Bank of America and Morgan Stanley will announce their results on Thursday.
“Animal spirits are back,” said Stephen Biggar, banking analyst at Argus Research, referring to the tendency of investors’ emotions to drive stock prices. “There are good times to be overexposed to capital markets income, and this is one of them.”
Goldman Sachs posted its biggest quarterly profit since the third quarter of 2021 at $4.11 billion, helped by transaction costs, debt sales and trading. Global banking and market revenues rose 33.4% year-on-year in the fourth quarter and the bank posted record annual net equity revenues.
The bank said in a statement that the outlook for investment banking fees was higher in December than in September, providing an optimistic outlook for the coming months.
JPMorgan Chase posted a roughly 50% rise in net profit as both investment banking fees and trading revenue rose last quarter, with CEO Jamie Dimon hoping for more favorable conditions.
The earnings reports come days before Monday’s inauguration of newly elected President Donald Trump, who has promoted an agenda of deregulation and lower taxes. Lighter regulation could lead to an increase in deal making, which could boost banks’ commission income.
“Businesses are more optimistic about the economy and are encouraged by expectations of a more pro-growth agenda and better government-business cooperation,” Dimon said in a statement.
A rebound in dealmaking helped Wells Fargo’s profits rise 47.3% to $5.1 billion, while investment banking expenses rose 59% to $725 million in the quarter from a year earlier.
Citigroup’s quarterly profit beat expectations, helped by more trading and deals. Investment banking revenues rose 35% to $925 million.
OUTLOOK FOR 2025
The possibility of softer regulation under Trump could help improve bank performance. Michael Barr, the Federal Reserve’s top regulator, announced this month that he will resign. His departure clears the way for Trump to appoint an official with a more industry-friendly agenda.
Analysts were eager to hear more from bank executives about the prospects for investment banking and net interest income, which is the difference between what banks earn on loans and what they pay for deposits. Investors expect the Federal Reserve to cut interest rates.
Wells Fargo and JPMorgan reported a decline in NII in the fourth quarter. Still, Wells Fargo predicted that the NII would start rising again in 2025, boosted by improving loan demand and lower deposit costs, while JPMorgan predicted that the NII would be at a higher level than analysts had forecast.
Banks said the U.S. economy is in good shape overall, helped by strong consumer spending.
“The U.S. economy has been resilient,” Dimon said.
(Reporting by Saeed Azhar, Nupur Arand, Tatiana Bautzer, in New York; Arasu Kannagi Basil, Niket Nishant, Manya Saini and Noor Zainab Hussain, in Bangalore; and Nivedita Balu, in Toronto. Writing by Carolina Mandl in New York; Editing by Megan Davies and Rod Nikkel)
