
Wall Street’s Revival: Big Banks’ Profits Hit Three-Year High in Q4
America’s six largest banks ended 2024 with an exceptional quarter, collectively earning $31 billion in profits, a 16% increase from the same period a year earlier. This surge marks the highest quarterly earnings for these institutions in three years, driven by heightened trading activity, strong market rallies, and a resurgence in corporate dealmaking.
A key factor behind the spike in profits was Donald Trump’s re-election in November, which injected volatility into financial markets and triggered a surge in trading volumes. The period leading up to the November 5 election saw significant uncertainty in equity and fixed-income markets. Following Trump’s victory, a strong rally in stocks provided Wall Street’s largest players — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley — with fertile ground to generate record revenues.
Several major banks, including JPMorgan and Citigroup, acknowledged that their trading divisions benefitted significantly from the elevated market activity. Analysts described the quarter as a ‘Goldilocks’ scenario, where long-term interest rates boosted profit margins while easing deposit costs enhanced overall profitability.
The results also highlight the resilience of the US banking sector following challenges in 2023, when regional bank failures required $10 billion in payouts to the Federal Deposit Insurance Corporation. With those setbacks behind them, major banks leveraged favorable market conditions to deliver one of their most lucrative quarters on record.
The catalysts driving Wall Street’s strong quarter
Several factors contributed to the profitability of America’s largest financial institutions in Q4 2024. Chief among them was a sharp rise in trading activity. Market participants reacted to the uncertainty surrounding Trump’s re-election, leading to higher trading volumes before and after the election. In the weeks following his victory, equities soared, generating $24.5 billion in trading revenue for the six largest banks.
Investment banking divisions also experienced a revival, reporting a 30% increase in fees from the previous year. These totaled $8.4 billion for the quarter, driven by a rise in debt issuances, equity offerings, and a modest recovery in mergers and acquisitions (M&A). Corporations took advantage of lower autumn interest rates to raise capital, while the post-election stock rally encouraged equity listings and dealmaking activity.
While investment banking fees remain well below their pandemic-era peak of $13 billion per quarter in 2021, analysts note that this was the strongest quarter for investment bankers in three years.
Bank stocks also reflected this optimism. The KBW Bank Index rose 33% in 2024, including a 10% gain after Trump’s election victory. Individual stocks like Goldman Sachs surged 50% for the year, while shares of Wells Fargo and JPMorgan climbed more than 40%.
However, some analysts are cautious about the sustainability of these gains. Christopher Whalen, head of Whalen Global Advisors, warned, “You could see a sell-off even if the numbers are reasonably good.” The substantial rise in bank stock valuations has created high expectations, making markets more vulnerable to corrections.
Challenges and risks for big banks moving forward
Despite the Q4 success, analysts caution that significant challenges lie ahead. Chief among these is the prolonged period of elevated short-term interest rates, which has strained lending profitability. Although higher long-term rates benefited banks’ margins, the Federal Reserve’s slow approach to cutting rates has forced banks to pay more for deposits, squeezing net interest income.
For instance, Wells Fargo reported an 8% decline in lending profits compared to 2023, while JPMorgan Chase and Citigroup experienced declines of 5% and 3%, respectively. These results highlight the challenges banks face in sustaining profitability from traditional lending activities.
Trump’s policy agenda also presents mixed implications. While lighter regulation and lower corporate taxes are expected to boost bank profitability, inflationary pressures stemming from tariffs and protectionist trade policies remain a concern. Strong US jobs data released in late 2024 sent short-term Treasury yields higher, tempering expectations for significant Federal Reserve rate cuts in 2025.
In addition, the market exuberance that has fueled stock gains may pose risks. With bank stock valuations at multi-year highs, any underperformance could prompt significant sell-offs. “The banks have a lot to deliver relative to expectations,” said Charles Peabody, head of Portales Partners.
Regulatory uncertainty is another potential challenge. While Trump’s administration favors deregulation, any economic disruptions could lead to a reversal of these policies and renewed scrutiny of the financial sector.
Looking ahead, optimism persists as investors anticipate that Trump’s lighter regulatory approach and tax policies will encourage loan growth, drive advisory fees, and boost shareholder returns through buybacks and dividends. For investment banking divisions, this could translate into more M&A activity, with fewer deals facing Washington’s scrutiny. However, analysts warn that maintaining the momentum of Q4 2024 may prove challenging. Prolonged inflation, higher interest rates, and the possibility of slower trading activity in a less volatile market could weigh on future earnings.
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