U.S. banks are heading into fourth-quarter earnings season with a markedly different backdrop from the caution that dominated much of the past two years. A broad revival in investment banking activity, combined with resilient trading desks and steady loan growth, has reshaped profit expectations across the sector. Analysts now expect the largest lenders to post sharply higher earnings, driven less by traditional lending spreads alone and more by a synchronized upswing in dealmaking, capital markets issuance, and client risk-taking as confidence returned late in the year.

This surge in profitability reflects how quickly sentiment can shift in banking when macroeconomic uncertainty eases. After prolonged deal paralysis caused by inflation shocks, aggressive monetary tightening, and regulatory scrutiny, the final quarter saw corporate boards, private equity sponsors, and asset managers re-engage. For banks with deep advisory franchises and global trading platforms, that shift translated into a powerful earnings catalyst.

Investment banking rebounds as uncertainty fades

The central driver of stronger fourth-quarter profits is the sharp recovery in investment banking revenue. Mergers and acquisitions activity accelerated as financing conditions stabilized and valuation gaps narrowed between buyers and sellers. Equity capital markets also reopened, with initial public offerings and follow-on share sales gaining traction after a long drought.

This revival matters because advisory and underwriting fees are highly operationally leveraged. Once deal pipelines reopen, incremental revenue flows through with relatively low marginal cost, boosting profitability disproportionately. For banks that had already invested heavily in talent and infrastructure during lean periods, the payoff arrived quickly.

Trading desks provided a second leg of support. Elevated volatility across fixed income, currencies, commodities, and equities created abundant client activity, while strong equity markets lifted derivatives and prime brokerage revenue. Together, these forces created what analysts describe as a “perfect setup” for investment banks: active clients, improving risk appetite, and sufficient market liquidity to execute complex transactions.

Policy backdrop reinforces growth expectations

The earnings outlook is also being shaped by expectations around economic and policy conditions. A resilient U.S. economy, steady consumer spending, and corporate balance sheets that remain broadly healthy have underpinned credit quality. At the same time, anticipation of a more growth-friendly regulatory environment has encouraged banks to lean into expansion plans.

Lower interest rate volatility compared with prior quarters has supported net interest margins, while loan growth is expected to reaccelerate as businesses pursue capital spending and acquisitions. Analysts argue that even if rate cuts are slower or more limited than once expected, the current level of rates still supports healthy bank profitability without choking off deal flow.

Crucially, delinquency trends remain contained. While some stress is visible in pockets of consumer credit, it has not risen to levels that materially threaten earnings. This has allowed banks to release less in provisions and focus investor attention squarely on revenue momentum.

JPMorgan Chase sets the tone

As the largest U.S. lender, JPMorgan Chase is expected to set the tone for the earnings season. Analysts anticipate a solid increase in earnings per share, driven by strength across investment banking, markets, and core lending. Its diversified model positions it to capture upside from both advisory activity and trading flows.

Investors, however, are closely watching expense guidance. JPMorgan’s scale gives it unmatched revenue generation capacity, but rising costs tied to technology investment, compliance, and talent have sparked concern about operating leverage in 2026 and beyond. Still, the fourth quarter is expected to demonstrate how revenue growth can temporarily outpace cost pressures when markets are favorable.

Bank of America benefits from rates and markets

Bank of America is widely expected to post one of the strongest percentage gains in quarterly earnings among large lenders. Higher net interest income remains a key driver, reflecting the bank’s sensitivity to rates and its vast deposit base. Trading revenue has also surprised to the upside, benefiting from active client positioning in equities and fixed income.

While its investment banking fees are projected to be steadier rather than sharply higher, the combination of lending strength and market activity has reinforced its earnings momentum. The bank’s performance underscores how diversified balance sheets can offset softer advisory trends when market conditions favor trading and interest income.

Citigroup sees leverage from capital markets

Citigroup’s expected earnings surge highlights the operating leverage embedded in its capital markets franchise. After years of restructuring and refocusing, the bank is increasingly exposed to swings in investment banking and trading revenue. In the fourth quarter, that exposure worked decisively in its favor.

Stronger deal flow and improved sentiment across global markets lifted advisory and underwriting fees, while its international footprint provided diversification benefits. For investors, the results will be closely scrutinized for signs that Citigroup’s strategic simplification is translating into more consistent profitability.

Wells Fargo accelerates post-constraint growth

Wells Fargo enters the quarter with renewed growth ambitions following the lifting of its long-standing asset cap. Analysts expect a solid rise in earnings, supported by higher net interest income and a more assertive push into investment banking.

The bank’s hiring and investment in advisory services are beginning to show results, albeit from a smaller base than peers. Investors are focused on whether Wells Fargo can translate regulatory relief into sustained revenue expansion without sacrificing credit discipline.

Goldman Sachs balances strong fees with volatility

Goldman Sachs stands apart from traditional lenders due to its heavier reliance on investment banking and markets. While advisory fees are expected to be strong, comparisons with last year’s exceptional performance complicate the earnings picture. Analysts project a modest decline in earnings per share, reflecting normalization after a surge driven by equity investment gains.

Rising compensation costs and softer net interest income in private banking may weigh on results, even as M&A activity supports headline revenue. For Goldman, the quarter illustrates how earnings volatility remains inherent in a pure-play investment banking model, even during favorable deal cycles.

Morgan Stanley draws strength from wealth and deals

Morgan Stanley is expected to post a healthy earnings increase, supported by its dual engines of investment banking and wealth management. Strong equity markets have continued to lift asset-based fees, while an active deal pipeline has reinforced advisory revenue.

Management has pointed to historically high investment banking pipelines, suggesting that momentum extends beyond a single quarter. This blend of recurring wealth revenue and cyclical dealmaking has become a defining feature of Morgan Stanley’s earnings resilience.

Market implications and investor focus

The expected profit surge has already been reflected in bank share prices, which rose sharply last year and have continued to edge higher. Investors are now shifting focus from recovery to sustainability: how long deal momentum can last, whether costs remain contained, and how sensitive earnings are to shifts in inflation and interest rates.

A key variable remains the macro outlook. Persistent inflation could keep rates higher for longer, supporting margins but potentially cooling asset prices and deal appetite. Conversely, rapid rate cuts could compress margins even as they stimulate activity. Banks’ fourth-quarter results will therefore be read not just as a snapshot of past performance, but as a guide to how balanced their earnings engines are in a changing environment.

What is clear is that the fourth quarter marks a turning point. After years of restraint, investment banking has reasserted itself as a primary profit driver, lifting overall bank earnings and restoring confidence in the sector’s growth narrative. Whether this momentum carries into the next year will depend on how durable the revival in corporate risk-taking proves to be, but for now, U.S. banks are closing the year on their strongest footing in several cycles.

(Adapted from TradingView.com)