Kena Betancur / VIEWpress / Getty images
What you need to know
- Due to the resurgence on Wall Street, U.S. major banks have posted significant revenue and profits gains in their fourth quarter.
- Investment banking revenues grew by 25% to more than double the previous quarter.
- For much of the past two years, banks had enjoyed ongoing expansion of net interest income, courtesy of the Federal Reserve's rate hikes. When the Fed began cutting interest rates, the gains stopped. Investment banking took over.
Due to the resurgence on Wall Street, U.S. major banks have posted significant revenue and profits gains in their fourth-quarter.
The revenue from investment banking soared in comparison to the same period a year earlier, and the biggest banks reported increases of at least 25%. JPMorgan Chase, Bank of America and JPMorgan Chase led with gains of up to 49% each.
The results were greeted with enthusiasm by investors. The SPDR S&P Bank ETF (KBE) gained more than 8% last week, recovering most of the decline posted since early December, as shares of JP Morgan, Wells Fargo (WFC), Citigroup (C) and other banks surged.
The December stock market decline reflected broader concerns about inflation and the Federal Reserve’s response. Investors in large banks were able to find some comfort last week, despite the fact that this anxiety continued into 2025.
Deals Drive Growth
In the fourth quarter, large banks grew their investment banking business due to increased activity on mergers and acquisitions as well in underwriting securities. The Fed's interest rate increases beginning in March 2022 had dampened both.
Companies resisted financing their operations through debt with higher interest rates. To the same extent, rising rates dampened interest in mergers and takeovers. The Fed’s decision to cut the benchmark interest rate by three times in September has started to shift this trend.
US corporations have issued $67.8billion of bonds in just December. This is almost twice the amount that was raised in the previous year, when they had only issued $35.7billion. Meanwhile, a long-anticipated rebound in mergers and acquisitions (M&A) appeared to take hold in 2024, with global deals totaling $3.4 trillion, up 15% from 2023.
Morgan Stanley estimates that private equity and venture capital firms still have about $3 trillion in uncommitted capital that could further fuel an M&A rebound in 2025. This would, of course continue to boost investment banking revenues.
The Right Time to Buy
This fourth-quarter boom in investment banking came just at the right time for big banks.
Banks have enjoyed a continuous expansion in their net interest earnings, thanks to the Fed’s rate rises, for much of the two-year period. If the Fed had stopped increasing rates, and instead started reducing them, then those gains would have ceased. Investment banking picked up revenue and earnings.
JPMorgan's results offer a prime example. The firm's net interest income in the fourth quarter fell marginally from the third quarter and dropped 3% from the fourth quarter of 2023.
Overall revenue increased by 10% due to the surge in investment banking and an increase of 21% in asset management fee. This latter group, as you can imagine, was boosted by the strong returns on U.S. stocks. A 7% decrease in non-interest costs and the revenue increase combined with a 50% year-over year profit growth.
Other large banks reported similar results, with an increase in the investment banking sector as the common theme.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
