Profits at some of the biggest US lenders rose in the fourth quarter as deal making picked up and trading was boosted by strong equity markets, sparking a rally in banking stocks on Wednesday.
The market environment has been favourable for banks. Equity markets have surged, with the S&P 500 climbing 23.3 per cent in 2024, while deal volumes have risen and strong demand for bond underwriting boosted investment-banking fees.
Shares among the banks that reported earnings on Wednesday rose between 5.9 per cent for Goldman Sachs and 0.9 per cent for JPMorgan Chase. Bank of America and Morgan Stanley will report results on Thursday.
“Animal spirits are back,” said Stephen Biggar, banking analyst at Argus Research, referring to the tendency for investors' emotions to drive stock prices. “There are good times to be over-exposed to capital markets revenues, and this is one of them.”
Goldman Sachs recorded its biggest quarterly profit since the third quarter of 2021, at $4.11 billion (€3.9 billion), helped by deal fees, debt sales and trading. Its fourth-quarter global banking and markets revenues rose 33.4 per cent year-over-year and the bank posted record net annual revenues in equities.
The bank said in a statement its prospects for investment-banking fees were greater in December than they were in September, offering an optimistic outlook for the coming months.
JPMorgan Chase posted a roughly 50 per cent rise in net income as both investment banking fees and trading revenues jumped in the last quarter, with chief executive Jamie Dimon hopeful of more favourable conditions to come.
The earnings reports come days before Monday's inauguration of President-elect Donald Trump, who has promoted an agenda of deregulation and lower taxes. Lighter regulation could spark an uptick in deal making, boosting banks' fee revenues.
“Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business,” Mr Dimon said in a statement.
A rebound in deal making drove Wells Fargo’s profit 47.3 per cent higher, to $5.1 billion, as its investment-banking fees jumped 59 per cent to $725 million in the quarter compared with a year earlier.
Citigroup’s quarterly profit beat estimates, helped by more trading and deals. Its investment-banking revenue soared 35 per cent to $925 million.
The possibility of softer regulation under Mr Trump may help improve banks’ performance. Michael Barr, the Federal Reserve’s top regulatory official, announced this month he will resign. His exit clears the way for Mr Trump to appoint an official with a more industry-friendly agenda. – Reuters
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