What We Learned From Big Bank Earnings Last Week | Global News Avenue

The largest U.S. banks saw revenue and profits rise sharply in the fourth quarter as Wall Street trading revived.

Investment banking revenue is up significantly from the same period last year, with the largest banks reporting increases of 25% or more. The two largest, JPMorgan Chase (JPMorgan Chase) and Bank of America (buck) led the way with staggering increases of 49% and 44% respectively.

Investors cheered the results. The SPDR S&P Bank ETF (KBE) rose more than 8% last week, recouping most of its losses since early December, as JP Morgan, Wells Fargo (world financial center), Citigroup (C) and other bank stock prices soared.

That Economic downturn in December Reflecting broader stock market concerns, they centered on lingering inflationary pressures and how the Federal Reserve might respond. While the anxiety continues into 2025, last week’s results brought some comfort to investors in the big banks.

Deals drive growth

Growth in the investment banking business of large banks in the fourth quarter reflected increased securities underwriting and M&A activity. The Federal Reserve’s interest rate hikes starting in March 2022 have dampened both.

Companies avoid financing operations that carry debt with higher interest costs. Likewise, higher interest rates have dampened enthusiasm for mergers and acquisitions. But that has begun to change as the Federal Reserve has shifted gears and cut its benchmark interest rate three times since September.

In December alone, U.S. companies issued $67.8 billion in bonds, nearly double the $35.7 billion in corporate issuance in the same month last year. Meanwhile, the long-awaited rebound Mergers and Acquisitions (M&A) This trend looks set to take root in 2024, with total global transactions reaching $3.4 trillion, a 15% increase from 2023.

Morgan Stanley estimates that private equity and venture capital firms still have about $3 trillion in uncommitted capital, which could further fuel the M&A rebound in 2025. Of course, this will continue to increase investment banking revenues.

good time

For the big banks, the investment banking boom in the fourth quarter couldn’t come at a better time.

Banks have enjoyed continued expansion for much of the past two years net interest incomethanks to the Federal Reserve’s interest rate hikes. But once Fed stops raising rates and starts cutting ratesthese gains ceased. As a result, investment banking helped bridge the gap in revenue and earnings.

JPMorgan Chase’s performance is a case in point. The company’s fourth-quarter net interest income declined slightly from the third quarter and was down 3% from the fourth quarter of 2023.

However, overall revenue rose 10%, reflecting a surge in investment banking and 21% growth Asset management fees increase. The latter, of course, benefited from strong returns in U.S. stocks. Revenue growth and a 7% drop in non-interest expenses led to a 50% year-over-year rise in quarterly profit.

The result is Other large banks A similar story is told, with the growth of investment banking forming a common thread.