US banks will reap bigger profits as transactions improve in the third quarter

The six largest US banks are expected to report stronger third-quarter earnings next week, driven by a recovery in the investment banking sector.

JPMorgan Chase JPM, Goldman Sachs GS, Morgan Stanley MS, Bank of America BAC, Citigroup C, and Wells Fargo WFC are expected to benefit from a deal revival, while a resilient economy will keep borrower conditions favorable, supporting consumer and commercial lending divisions.

As major lenders begin announcing their results on Tuesday, investors will be paying attention to their economic commentary and expectations for investment banking and trading.

“There will be a lot of focus on any changes in the credit environment, the impact of jobs data, and the overall economic outlook,” said Mac Sykes, portfolio manager at Gabelli Funds. “Consumer confidence is lower, business confidence is still growing, and we will continue to monitor whether there are still concerns from the volatility seen earlier this year.”

M&A IS CREATED BY FITTING REGULATIONS, PRICE CUTS

Investment banking has recovered after stalling earlier this year following President Donald Trump’s tariff announcement. Easing regulations and expectations of further interest rate cuts have also helped open up opportunities for mergers and acquisitions, prompting JPMorgan to call this summer one of its busiest for dealmaking. Recruitment has also increased.

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 in the first seven months of the year since the pandemic-era peak in 2021.

M&A and initial public offerings (IPOs) have driven a surge in deals, while equity capital markets remain strong.

Some analysts remain cautious about the revival of the deal.

“Our view of the M&A cycle is that while this bird may have spread its wings, it has not yet fully taken off,” wrote Chris Kotowski, an analyst at Oppenheimer. Contrast that with expectations of an “epic M&A boom” at the start of the year that have yet to materialize.

Trading revenues for banks are also expected to grow.

“Historically, the third quarter tends to be a seasonally slow trading period… However, the third quarter of 2025 appears to buck the trend,” wrote analysts at Jefferies. Equity trading volume was strong, and activity also increased in fixed income, currencies and commodities, Jefferies said.

Investors will also focus on estimates of net interest income, the difference between a bank’s income from loans and deposit payments. NII expectations are likely to be solid as the US economy remains resilient, wrote analysts at Baird Equity Research.

The largest lender said US consumers remained in good financial health, and borrowers continued to make loan payments. Investors will pay attention to any changes in borrower delinquencies or defaults.

“While there are no major concerns on the investment banking and commercial sides of the business, on the consumer side we see deposit rates and loan growth remaining static,” said Brian Mulberry, portfolio manager at Zacks Investment Management.

He is looking for warning signs in consumer businesses, and “there are also growing concerns around potential defaults at some smaller companies.”

Analysts will also be listening to what banks have to say about loan demand.

“Banks have large amounts of capital, the macroeconomic environment remains stable, so we will wait for management’s comments to see if all this leads to improved loan growth in the coming quarters,” said Suryansh Sharma, analyst at Morningstar Research Services.

Here’s what’s likely to come from the six largest US lenders in the third quarter:

JPMORGAN CHASING

The largest US bank is expected to report on Tuesday that earnings per share rose more than 10%, driven by strong investment banking fees and market revenue, according to LSEG estimates.

JPMorgan told investors at a conference last month that it expects its investment banking revenue to grow double-digits in the third quarter.

BANK OF AMERICA

EPS will likely jump nearly 17% when it reports earnings on Wednesday, LSEG estimates show. Investors are seeking clarity on the pace of share buybacks and capital management, which will likely be discussed at BofA’s investor day in November, UBS analysts said.

Bank of America expects its investment banking costs to increase 10% to 15% in the third quarter, Chief Financial Officer Alastair Borthwick told investors at a September conference.

CITIGROUP

Analysts see Citigroup’s EPS jumping 26%, driven by capital markets.

Citi said previously its investment banking fees and market revenues were expected to increase by a single-digit percentage.

FARGO WELLS

Investors are focused on the bank’s growth plans after a $1.95 trillion asset cap was lifted by regulators this year. They will also be closely watching Wells Fargo’s NII guidance, which was lowered in July and has since remained in effect.

SACHS GOLDMAN

The Wall Street giant will likely see EPS rise nearly 31%, driven by gains in the investment banking and trading sectors, analysts said, who will gauge whether the gains are sustainable.

MORGAN STANLEY

Morgan Stanley’s EPS is expected to rise more than 11%.

“We believe the franchise’s combined strength in capital markets and multiple wealth channels, global footprint and strong revenue generation create competitive advantages that will enable Morgan Stanley to outperform its peers in earnings growth over the medium term,” wrote Ebrahim Poonawala, BofA analyst.
Source: Reuters