US banks to reap bigger profits as deals rebound in third quarter

The six largest U.S. banks, including JPMorgan Chase, Goldman Sachs, and Bank of America, are anticipated to report stronger third-quarter earnings, primarily propelled by a significant rebound in investment banking, particularly M&A and IPOs, alongside robust trading revenues. A resilient U.S. economy is also expected to bolster consumer and commercial lending, contributing to solid net interest income. Investors will closely monitor management commentary on the economic outlook, credit environment changes, loan growth, and any emerging concerns regarding consumer delinquencies or potential defaults among smaller firms, despite some analyst caution regarding the M&A revival's sustained momentum.

Analysis

Bitcoin price today: hovers above $123,000, but stays below record highs By Nupur Anand NEW YORK (Reuters) -The six largest U.S. banks are expected to report stronger third-quarter earnings next week, catapulted by a rebound in investment banking. JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and Wells Fargo are forecast to benefit from resurgent dealmaking, while a resilient economy keeps borrowers in good shape, propping up consumer and commercial lending divisions. When major lenders begin to announce results on Tuesday, investors will pay close attention to their economic commentary and expectations for investment banking and trading. "There is going to be a lot of focus on any changes in the credit environment, impact of jobs data, and the overall economic outlook," said Mac Sykes, portfolio manager at Gabelli Funds. "Consumer confidence has been lower, the business confidence is still evolving, and we will watch out to see if there are any lingering concerns from the volatility seen earlier this year." M&A BUOYED BY EASING REGULATIONS, RATE CUTS Investment banking has rebounded after stalling earlier this year following President Donald Trump’s tariff announcements. Easing regulations and expectations for further rate cuts have also helped unlock mergers and acquisitions, prompting JPMorgan to call this summer one of its busiest for dealmaking. Hiring has also picked up. According to Piper Sandler analysts, 49 deals were announced in the third quarter through mid-September, up from 39 in the second quarter and 32 in the same period last year. Global M&A has reached $2.6 trillion, the highest for the first seven months of the year since the 2021 pandemic-era peak. M&A and initial public offerings have driven the dealmaking surge, while equity capital markets stayed robust. Some analysts remain cautious about the deal revival. "Our view on the M&A cycle is that while the bird may be flapping its wings, it hasn’t quite achieved lift-off yet," Chris Kotowski, an Oppenheimer analyst, wrote. That compares with expectations for an "epic M&A boom" at the start of the year that has not materialized. Trading revenues for banks are also expected to grow. "Historically speaking, third quarter tends to be a seasonally slow period for trading ... That said, Q3 2025 appeared to buck that trend," analysts at Jefferies wrote. Equities trading volumes were robust, and activity was also elevated in fixed income, currencies, and commodities, Jefferies said. Investors will also focus on forecasts for net interest income, the difference between what banks earn on loans and pay for deposits. NII expectations are likely to be solid as the U.S. economy stays resilient, analysts at Baird Equity Research wrote. The biggest lenders have said U.S. consumers remain in good financial health, and borrowers are continuing to make loan payments. Investors will watch for any changes in borrowers’ delinquencies or defaults. "While there are no major concerns on the investment banking and the commercial side of the business, on the consumer side we have seen deposit levels and loan growth have remained static," said Brian Mulberry, portfolio manager at Zacks Investment Management. He is looking for any warning signs in the consumer businesses, and "there are also some growing concerns around potential defaults in some smaller firms." Analysts will also listen to what banks say about loan demand. "Banks are sitting on a huge amount of capital, the macroeconomic environment has held steady, so will wait for management commentary to see if all these things point to a pick up in loan growth in the coming quarters," said Suryansh Sharma, analyst at Morningstar Research Services. Here is what is likely to come from the six biggest U.S. lenders in the third quarter: JPMORGAN CHASE The largest U.S. bank is expected to report on Tuesday that earnings per share rose more than 10%, driven by strong investment banking fees and markets revenue, according to LSEG estimates. JPMorgan told investors at a conference last month that it expects its investment banking revenue to grow in the low double digits for the third quarter. BANK OF AMERICA EPS is likely to jump nearly 17% when it reports earnings on Wednesday, LSEG estimates showed. Investors are looking for clarity on the pace of share buybacks and capital management, which is likely to be addressed at BofA’s investor day in November, UBS analysts said. Bank of America expects its investment banking fees to increase 10% to 15% in the third quarter, Chief Financial Officer Alastair Borthwick told investors at the September conference. CITIGROUP Analysts see Citigroup’s EPS surging 26%, fueled by capital markets. Citi said earlier its investment banking fees and market revenue are expected to rise by a mid-single-digit percentage. WELLS FARGO Investors are focused on the bank’s growth plans after its $1.95 trillion asset cap was lifted by regulators this year. They will also pay close attention to Wells Fargo’s NII guidance, which was lowered in July and has since held steady. GOLDMAN SACHS The Wall Street giant is likely to see a nearly 31% increase in EPS, propelled by gains in investment banking and trading, said analysts, who will gauge whether the gains are sustainable. MORGAN STANLEY Morgan Stanley’s EPS is estimated to rise by more than 11%. "We believe the strength of the combined franchise across capital markets and the various wealth channels, a global footprint, and strong earnings generation creates a competitive advantage that should allow Morgan Stanley to outperform peers on revenue growth over the medium-term," Ebrahim Poonawala, a BofA analyst, wrote. Bank Q3 EPS estimates JPMorgan 4.83 Bank of 0.95 America Citigroup 1.90 Wells 1.54 Fargo Goldman 10.99 Sachs Morgan 2.09 Stanley Source: LSEG What's the real story behind C today? Get an up-to-the-minute summary from WarrenAI, our powerful AI financial researcher. It's just like ChatGPT for investors, but with access to 1,200+ premium metrics spanning 10 years of data to instantly screen fundamentals, summarize breaking news, and reveal what Wall Street analysts are really saying about C. Ask questions in your own language and get insider answers in seconds. Think of it as your experienced investment partner—always ready to help you think through every angle of C. The six largest U.S. banks are poised for stronger third-quarter earnings, primarily driven by a significant rebound in investment banking activity and robust trading revenues. Investment banking saw M&A deals increase to 49 in Q3 through mid-September from 39 in Q2, contributing to global M&A reaching $2.6 trillion, the highest for the first seven months since 2021. Additionally, Q3 2025 bucked seasonal trends with elevated equities and Fixed Income, Currencies, and Commodities (FICC) trading volumes. Individual bank estimates reflect this strength, with Goldman Sachs projected for a nearly 31% EPS increase and Citigroup for a 26% surge, both fueled by capital markets and investment banking. A resilient U.S. economy is also expected to bolster consumer and commercial lending, supporting solid net interest income (NII) expectations across the sector. JPMorgan Chase anticipates low double-digit investment banking revenue growth, while Bank of America projects 10-15% increases in the same segment. Despite the positive outlook, investors will closely monitor management commentary on potential changes in the credit environment, loan growth trajectories, and any emerging signs of consumer delinquencies or defaults, particularly among smaller firms. While the overall sentiment is optimistic, an Oppenheimer analyst cautioned that the M&A cycle "hasn't quite achieved lift-off yet," suggesting a nuanced view on sustained momentum. Wells Fargo's NII guidance and growth plans post-asset cap lift will also be under scrutiny, indicating some specific concerns for certain institutions.

Key Decisions for Investors

• Investors should closely monitor the upcoming Q3 earnings reports for confirmation of investment banking and trading revenue strength, as well as management's forward-looking commentary on credit quality and economic outlook.
• Evaluate the sustainability of the M&A rebound and look for clear indicators of future loan growth, particularly in commercial and consumer segments, given some analyst caution on the M&A cycle and static consumer loan growth.
• Scrutinize any changes in NII guidance, borrower delinquency rates, and potential for defaults among smaller firms, as these could signal shifts in the resilient economic narrative.
• Consider differentiating exposures among banks based on their specific investment banking strength, consumer lending vulnerabilities, and individual guidance, especially for Wells Fargo's NII and post-asset cap growth plans.