Wall Street’s largest banks are poised to report their highest fourth-quarter trading revenue in five years, as November’s election and global uncertainty sparked market moves that boosted profits.
According to a Bloomberg report issued this week, the five biggest U.S. banks are expected to report combined trading revenue of $24.5 billion, a 15% jump from last year. Bank of America set the tone when CEO Brian Moynihan announced his firm’s “best-ever quarter” in trading, while Citigroup projects revenue increases in the high teens.
“This will be a strong year for market activities,” Scott Siefers, a Piper Sandler analyst, told Bloomberg. “There’s an implicit sense that there will be a lot of volatility, which is good for trading desks.”
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Investment banking has also surged. Bloomberg reports that Citigroup expects fees to rise 25-30% compared to last year, while JPMorgan anticipates a 45% increase. The six largest U.S. banks are projected to report $31 billion in total profits for the quarter, marking a 16% increase from 2023, according to PYMNTS.
The Federal Reserve’s September interest rate cut has reshaped the banking landscape, making loans cheaper and spurring dealmaking activity. However, it squeezes banks’ profit margins between what they charge borrowers and pay depositors. The four largest banks are expected to see this key revenue source drop 3.7% from last year.
Some financial firms have already reported strong results. Jefferies Financial Group saw its investment banking revenue soar 73% from the previous year, pointing to broader industry strength. “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,” Siefers told PYMNTS.
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Looking ahead, bank analysts anticipate Trump’s second term could bring lighter regulation and reduced taxes, potentially boosting loan growth. However, proposed tariffs and trade policies might drive inflation higher than forecast.
The quarter’s strong performance comes as Michael Barr, the Federal Reserve’s point person on bank capital requirements, announced his February departure. This clouded the future of proposed regulations that would require larger loss buffers for major banks.
Oppenheimer & Co. analyst Chris Kotowski noted that while Barr’s version of the rules “probably won’t be implemented,” wholesale changes to bank regulation remain unlikely.
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