What We Learned From Big Bank Earnings Last Week

Investment Banking Performance - The largest US banks reported significant revenue and profit gains in Q4, driven by a resurgence in Wall Street dealmaking [2] - Investment banking revenue surged, with the largest banks reporting increases of 25% or more compared to the same quarter a year ago [2] - JPMorgan Chase and Bank of America led with investment banking revenue gains of 49% and 44% respectively [2] Market Reaction - Investors responded positively, with the SPDR S&P Bank ETF gaining over 8% last week [3] - Shares of major banks like JPMorgan, Wells Fargo, and Citigroup surged, recovering most of the decline since early December [3] Deals Driving Growth - Increased activity in securities underwriting and mergers and acquisitions fueled investment banking growth in Q4 [4] - US corporations issued $67.8 billion in bonds in December, nearly double the$35.7 billion issued in the same month a year earlier [6] - Global M&A deals totaled $3.4 trillion in 2024, up 15$3 trillion in uncommitted capital, which could further fuel an M&A rebound in 2025 [7] Net Interest Income and Investment Banking - Banks had enjoyed net interest income expansion due to the Fed's rate hikes over the past two years, but gains halted once the Fed started cutting rates [8][10] - Investment banking helped offset the decline in net interest income, contributing to overall revenue growth [8][10] JPMorgan's Performance - JPMorgan's net interest income fell marginally from Q3 and dropped 3% from Q4 2023 [9] - Overall revenue rose 10%, driven by a surge in investment banking and a 21% increase in asset management fees [9] - Quarterly profit increased 50% year over year, supported by revenue gains and a 7% decline in non-interest expenses [9] Industry Trends - Other large banks also saw similar trends, with investment banking business being the common driver of growth [11]