US investment banks have little room for error in their upcoming full-year results. With share prices of almost all the major firms at or close to record highs, shareholders expect to hear unbridled optimism, based on hopes for tax cuts and a deal-friendly White House under President Donald Trump, about the prospects for the coming year.
Still, plenty of uncertainty remains about exactly what Trump’s second coming will bring. The populist president must juggle conflicting goals such as juicing the economy while introducing tariffs and pledging cheaper prices for consumers. Bank stocks have soared since the election, but analysts have lifted earnings forecasts much more for 2026 than 2025. Any hesitancy from the leaders at Goldman Sachs Group Inc., JPMorgan Chase & Co. or Morgan Stanley when they report next week could knock share prices hard.
Jefferies Financial Group Inc. kicked off the earnings season on Wednesday with a 53% year-on-year jump in fourth quarter revenue from advising on transactions and capital raisings in what turned out to be a bumper final three months of 2024 for the industry. President Brian Friedman pointed to a backlog of deals in an interview with Bloomberg News, and said 2025 could see a return to normal levels of activity after the recovery in 2024.
Jefferies’s growth outstripped expectations for most rivals: Moelis & Co is forecast to do slightly better with a 56% revenue surge in the final quarter, based on estimates collected by Bloomberg, while JPMorgan is expected to report the biggest jump among large banks with 43% rise in investment banking fees year on year.
A long-awaited pickup in new stock listings and other equity financings boosted activity in the final months of 2024, after several quiet quarters. Industry-wide revenue from advising on equity capital markets transactions is expected to be up 52% versus the final quarter of 2023, according to analysts at RBC Capital Markets.
For most of last year, investment-banking fees were driven by debt sales, particularly among junk-rated and private equity-owned companies, many of whom refinanced private credit with cheaper syndicated loans. Debt-related revenue is expected to be up 47% in the final quarter versus the same period a year before.
Only merger-advisory fees remain sluggish. While some major deals were completed in the final quarter, such as the $22.5 billion takeover of Marathon Oil by ConocoPhilips and the Blackstone Inc.-led $16.5 billion deal for Australia-based data center group AirTrunk, RBC expects total M&A revenue to be just 2% higher than for the fourth quarter of 2023.
Bankers have been talking up a strong start to 2025, based mainly on the view that company executives and private equity managers will be stoked by animal spirits alone before the new administration’s actual policies start to become clear. Aggressive, chaotic or confusing action from Trump and his team would likely derail this confidence.
There is plenty of pent-up activity, particularly from private equity funds carrying businesses they’ve owned for too long and would like to sell, if only they could reach acceptable valuations. The health of equity capital markets late last year is a good sign that public market investors will be more receptive to private companies and startups. Daniel Fannon, banking analyst at Jefferies, says that global equity-linked fees are finally climbing back toward 10-year average levels and, with initial public offerings and private equity exits gaining momentum, there’s more recovery to come.
Analysts’ earnings expectations have improved since Trump won the election, but much more for next year than this, reflecting uncertainty about how the new President will really behave. Smaller investment banks like Jefferies itself, PJT Partners Inc. and Evercore have won the biggest upgrades. Forecasts for Jefferies’s earnings per share have jumped nearly 12% for 2026, based on data collected by Bloomberg, but only by about 4% for 2025.
Morgan Stanley and Goldman Sachs lead upgrades among the bigger banks, while Bank of America Corp. and Citigroup Inc. aren’t seen benefiting nearly as much in either year. And just to show the picture isn’t uniformly rosy, Moelis and Lazard Inc.’s forecasts for 2025 have been cut since Nov. 5.
Investors in pack leaders like Jefferies and PJT need Trump 2.0 to deliver all the favorable winds that have been promised, while keeping inflation down and interest rates falling, if the giddy optimism gripping bank stocks right now is going to persist. Personally, I predict one or two unsettling bumps in the road this year at least. Bank stocks aren’t priced for perfection, but they’re sure close to it.
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