Wall Street Banks Profit from Trading Strength and Dealmaking Rebound

Wall Street banks are reporting strong earnings for the fourth quarter of 2024, driven by robust trading activity and a rebound in dealmaking. The surge in profits comes as investors pour into US stocks, fueled by optimism about President-elect Donald Trump's pro-business approach and expectations for sweeping policy changes.

Trading volumes in US equities jumped 38% in November 2024 compared to the same month in 2023, reaching levels not seen since the meme stock craze of early 2021 (Cboe Global Markets). This increase in activity was driven by expectations that Trump would take a more business-friendly approach, sending investors pouring into US stocks after the election. The strong year in US markets, with the S&P 500 index rising 27% year-to-date, further contributed to the boost in investor confidence and market activity.

Marianne Lake, retail banking chief at JPMorgan Chase, stated that there's likely to be "meaningful policy change" and a "sort of pro-growth type agenda" under Trump, which has encouraged broader participation in equity trading outside of just the tech sector (Financial Times). The Federal Reserve's expected interest rate cuts and a more relaxed regulatory environment under Trump were also expected to lead to higher trading volumes into 2025 (Patrick Moley, senior research analyst at Piper Sandler, Financial Times).

The surge in trading activity and dealmaking has benefited Wall Street's biggest banks. JPMorgan Chase's trading revenues in the final three months of 2024 were on track to rise "a touch better" than 15% from a year earlier, more than triple the 5% gain analysts had been forecasting prior to Trump's victory (Bloomberg). Citigroup also reported that its fourth-quarter trading revenue was set to rise as much as 19% from a year ago.

Goldman Sachs, the sixth-largest US bank, reported its best profit since the third quarter of 2021, driven by bankers who brought in more fees from dealmaking, debt sales, and strength in trading (Reuters). Its investment banking fees rose 24% to $2.05 billion in the fourth quarter, powered by debt underwriting that benefited from strong leveraged finance and corporate bond sales. The bank's earnings per share came in at $11.95, compared to the $8.22 expected by analysts.

The strong performance of banks in the fourth quarter of 2024 reflects solid consumer spending, higher stock prices, and a dealmaking pick-up undergirded by a strong economy. The regulatory environment and interest rate cuts have also played a significant role in influencing the banks' performance. The Basel III Endgame capital requirements were "meaningfully watered down," leading to a more constructive outlook for banks in 2025 (Keefe, Bruyette). The Federal Reserve's expected interest rate cuts and a more relaxed regulatory environment under President-elect Donald Trump were anticipated to lead to higher trading volumes into 2025.

In conclusion, the surge in trading strength and dealmaking activity in 2024 has contributed to the strong performance of Wall Street banks in the fourth quarter. The election of President Trump, a strong US market, and expectations for policy changes have all played a role in boosting investor confidence and market activity. The regulatory environment and interest rate cuts have also influenced the banks' performance, with the Basel III Endgame capital requirements being "meaningfully watered down" and the Federal Reserve's expected interest rate cuts anticipated to lead to higher trading volumes into 2025. As the big banks kick off the fourth-quarter earnings season, investors will be watching closely to see how these factors continue to impact the financial sector.