Investment Banking Bounceback Powers Big U.S. Lenders

America’s biggest banks reported stronger-than-expected earnings in the first quarter, highlighting how a resilient economy is helping power everything from Main Street to Wall Street.

JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley all reported revenue and earnings that beat or met analysts’ expectations. Consumer spending remained robust. Pent-up demand for dealmaking, stock and bond sales lifted earnings at the Wall Street-heavy banks. A market rally continued in early 2024, boosting fees the banks collect on money they manage for clients.

But the results were tempered by rising pressure from interest rates, which squeezed profit margins. Banks are warning that the recovery in capital markets is fragile. And many said they don’t expect much revenue and profit growth this year.

As a group, the six big banks reported $35.63 billion in profits, down 3% from a year ago, with half of the banks reporting a decrease in profit and half of them reporting an increase. Combined revenue rose 4% to $139.07 billion.

Investors walked away from the period worried the booming profits of the last few years were over for the big banks. Bank of America fell 3.5% to $34.68 on Tuesday, leading the declines. The KBW Nasdaq Bank Index dropped 1.6% and is now down 7.7% this month. The S&P Financials Sector fell for its sixth straight session.

Morgan Stanley was the exception Tuesday, rising 2.5% to $89.14 after its report.

Consumer spending

Executives said the economy continued to look strong, with consumers and businesses both spending and borrowing. Revenue from wealth-management arms also increased.

Credit-card income and transaction volumes jumped. Aggregate spending on debit and credit cards at JPMorgan, the biggest issuer of the group, rose 9% and credit-card loans, or outstanding balances, increased 15%.

Consumers across the board appear to be benefiting from higher paychecks. Research from Bank of America shows that wages grew in March for high-income and low-income households at the fastest rate since early 2023, a reflection of the country’s strong labor market.

“The economy remains resilient and a lot of that has to do with the consumer,” Bank of America Chief Financial Officer Alastair Borthwick said during a call with reporters Tuesday.

But there are some areas of concern. JPMorgan Chief Executive Jamie Dimon said on a call with reporters Friday that there were signs of distress in the bank’s loans to consumers with low credit scores.

Investment bank resurgence

The banks’ investment-banking divisions delivered one of their best quarters since the Federal Reserve’s interest-rate increases began dampening corporate dealmaking in 2022.

“The rebound in banking gained speed during the quarter, led by near-record levels of investment-grade debt issuance as improved market conditions enable issuers to pull forward activity,” Jane Fraser, Citigroup’s CEO, said during the bank’s conference call with analysts.

That is both thanks to higher underwriting fees, as banks helped arrange and sell a record number of debt deals during the quarter, and equity underwriting, as initial public offerings picked up.

Goldman Sachs’s and Citigroup’s investment-banking fees each increased 32% from a year earlier while Bank of America’s rose 38%. Several large banks posted a revenue decrease in M&A and advisory activity, while Goldman reported a 24% increase.

Trading revenue fell at JPMorgan and Citigroup and were about flat at Morgan Stanley and Bank of America. Goldman reported a 10% increase.

While banks said corporate executives have regained confidence, the recovery remains fragile, given the uncertainty around interest rates and geopolitical tensions. And despite improvements, investment-banking activity remains below historic norms.

JPMorgan warned that borrowers might be less active in the capital markets later in the year. Goldman said its backlog of future investment-banking revenue fell from the end of 2023.

Struggles ahead

Banks could struggle in the long term if rates stay where they are now.

Customers are demanding higher deposit rates for money they keep in banks. While some shifted cash from low-interest savings accounts into certificates of deposit, bank executives also acknowledged the continued risk of customers moving money out of the banks and into higher-yielding alternatives. That could force banks to find pricier sources of funding.

Many, including JPMorgan, Citigroup and Wells Fargo, already reported that net interest income, or the amount they earn from loans minus what they pay on deposits and other debt, was down in the first quarter compared with the fourth quarter of 2023.

Higher rates can also hurt banks’ balance sheets. Banks including Bank of America are sitting on hundreds of billions of dollars of unrealized losses on debt securities that they bought before interest rates went up. Though they aren’t likely to have to realize them, it makes investors skittish.

While that problem started to improve in the second half of last year, losses on such securities rose in the first quarter at Bank of America.

Another headache: tighter bank regulations. Federal authorities are finalizing a new set of rules that could make it more expensive for banks to lend.

Charley Grant and Gina Heeb contributed to this article.

Write to Alexander Saeedy at [email protected], AnnaMaria Andriotis at [email protected] and Justin Baer at [email protected]