Wall Street lenders are poised to report a significant boost in second-quarter earnings, driven by an expected recovery in investment banking fees. Analysts predict that investment banking revenues at major banks like JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, and Citigroup will, on average, rise by more than 30% from the previous year. This rebound comes after two lackluster years for dealmaking activity, which saw investment banking revenues fall to multi-year lows in 2023 from record highs in 2021.
The resurgence in dealmaking is attributed to a pickup in mergers, debt offerings, and increased confidence in the economy. JPMorgan, for instance, informed investors that its second-quarter investment banking revenues were projected to increase by as much as 30%, which was double its initial forecast. Notable large deals contributing to this recovery include ExxonMobil’s $60 billion acquisition of Pioneer Natural Resources and Aon’s $13 billion purchase of insurance broker NFP. Goldman Sachs and Morgan Stanley, with their greater exposure to investment banking, are expected to benefit the most from this trend.
Despite the positive outlook for dealmaking, the banking sector faces headwinds from rising loan defaults. JPMorgan, Bank of America, Citigroup, and Wells Fargo, the four largest U.S. banks by deposits, are expected to report over $7 billion in charge-offs—losses on unrecoverable loans—in the second quarter, marking a more than 50% increase from a year prior. However, analysts believe the tailwind from capital markets activity, which is still ramping up but below normal trend lines, will persist through 2024 and into 2025.
