NEW YORK (Reuters) -Wall Street CEOs voiced confidence on Wednesday that the incoming U.S. administration would be business-friendly and good for banks as they reported a profits surge after dealmaking and trading picked up.
The market environment has already been favorable for banks, with buoyant equity markets and anticipation that President-elect Donald Trump will usher in a deregulatory and lower-tax agenda.
"There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election," Goldman Sachs CEO David Solomon told analysts on an earnings call. "Additionally, there is a significant backlog from sponsors and an overall increased appetite for dealmaking, supported by an improving regulatory backdrop."
Shares among the banks that reported earnings on Wednesday rose solidly, with Goldman Sachs climbing 6.1%, JPMorgan Chase (NYSE:JPM) up 2%, Wells Fargo (NYSE:WFC) gaining 7% and Citi up 7.4%. Bank of America and Morgan Stanley (NYSE:MS) 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."
Equity markets have surged over the past year, with the S&P 500 climbing 23.3% in 2024, while deal volumes have risen and strong demand for bond underwriting boosted investment-banking fees. Since the November U.S. election, the KBW Banking index is up nearly 10%.
Goldman Sachs recorded its biggest quarterly profit since the third quarter of 2021, at $4.11 billion, helped by deal fees, debt sales and trading. Its fourth-quarter global banking and markets revenues rose 33.4% 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% rise in net income as both investment-banking fees and trading revenues jumped in the last quarter, with CEO Jamie Dimon hopeful of more favorable conditions to come.
The earnings reports come days before the presidential inauguration, with Trump promoting an agenda of deregulation and lower taxes. Lighter regulation could spark an uptick in dealmaking, 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," Dimon said in a statement.
Wells Fargo was similarly hopeful.
"We feel optimistic about where we are going into 2025 both because of where the economy is and the strength that has existed, as well as the business-friendly approach from the incoming administration," Wells Fargo CEO Charlie Scharf told analysts.
A rebound in dealmaking drove Wells Fargo's profit 47.3% higher, to $5.1 billion, as its investment-banking fees jumped 59% to $725 million in the quarter compared with a year earlier.
Citigroup (NYSE:C)'s quarterly profit beat estimates, helped by more trading and deals. Its investment-banking revenue soared 35% to $925 million.
“We saw without exception bank earnings surpass expectations," said Neville Javeri, portfolio manager at Allspring, which has $590 billion in assets and owns Citi and JPMorgan shares. "Put it all together, it sets up for a very, very favorable backdrop. That’s what bank shares are cheering today.”
2025 OUTLOOK
Michael Barr, the Federal Reserve's top regulatory cop, announced this month he will resign. His exit clears the way for Trump to appoint an official with a more industry-friendly agenda.
Analysts were eager to hear more from bank executives about the outlook for investment-banking and net interest income, which is the difference between what banks earn from loans and what they pay for deposits. Investors expect the Federal Reserve to cut interest rates.
Wells Fargo and JPMorgan reported drops in NII in the fourth quarter. Still, Wells Fargo projected that NII would begin to increase again in 2025, boosted by a pickup in loan demand and lower deposit costs, while JPMorgan forecast NII at a higher level than analysts had projected.
Banks said overall, the U.S. economy is in good shape, helped by strong consumer spending.
"The U.S. economy has been resilient," Dimon said.