NEW YORK (Reuters) - Profits at some of the largest U.S. banks rose in the fourth quarter, sparking gains in bank stocks on Wednesday as trading picked up and strong stock markets boosted trading.
Market conditions are favorable for banks. Stocks are surging, with the S&P 500 up 23.3% in 2024, trading volume has increased, and strong demand for bond underwriting has pushed up investment bank fees.
Shares of banks reporting earnings on Wednesday rose, with Goldman Sachs rising 5.9% and JPMorgan Chase rising 0.9%. Bank of America and Morgan Stanley are due to report results on Thursday.
"The animal spirits are back," said Argus Research banking analyst Stephen Biggar, referring to trends in investor sentiment driving stock prices. "There are good times to be overly exposed to capital markets income, and this is one of them."
Goldman Sachs recorded its largest quarterly profit since the third quarter of 2021, reaching $4.11 billion, thanks to transaction fees, debt sales and trading. Its fourth-quarter global banking and markets revenue increased 33.4% year-over-year, and the bank's stock annual net income hit a record high.
The bank said in a statement that the outlook for investment banking fees in December was higher than in September, which was optimistic about the outlook for the coming months.
JPMorgan's net profit rose about 50% as investment banking fees and trading revenue surged in the last quarter, and CEO Jamie Dimon is hopeful of more favorable conditions ahead.
The earnings release comes just days before President-elect Donald Trump is set to take office, pushing an agenda of deregulation and lower taxes. Easing regulations could trigger an increase in transactions, thereby boosting banks' fee income.
"Businesses are more optimistic about the economy and are encouraged by expectations of a more pro-growth agenda and improved cooperation between government and business," Dimon said in a statement.
The rebound in trading pushed Wells Fargo's profit up 47.3% to $5.1 billion, while investment banking expenses in the quarter rose 59% from a year earlier to $725 million.
Citigroup's quarterly profit beat estimates thanks to more deals and deals. Revenue from its investment banking business soared 35% to $925 million.
Outlook 2025
Easier regulations under Trump could help improve bank performance. Michael Barr, the Fed's top regulatory police officer, announced his resignation this month. His exit clears the way for Trump to appoint an official with a more industry-friendly agenda.
Analysts are eager to hear more from bank executives about the outlook for investment banks and net interest income, the difference between what a bank earns from loans and what it pays out on deposits. Investors expect the Federal Reserve to cut interest rates.
Wells Fargo and JPMorgan Chase reported lower NII in the fourth quarter. Still, Wells Fargo expects NII to start growing again in 2025, driven by a rebound in loan demand and falling deposit costs, while JPMorgan predicts NII levels will be higher than analysts expect.
Banks said overall the U.S. economy is in good shape thanks to strong consumer spending.
"The U.S. economy has been resilient," Dimon said.
(Reporting by Saeed Azhar, Nupur Arand, Tatiana Bautzer in New York; Arasu Kannagi Basil, Niket Nishant, Manya Saini and Noor Zainab Hussain in Bengaluru; Nivedita Balu in Toronto. Writing by Carolina Mandl in New York; Editing by Megan David in New York Si and Rod Nickell)