4 trends to watch this bank earnings season

• JPMorgan and Wells Fargo kick off bank earnings on Friday.
• Expect lots of questions about how lower rates will impact business going forward.
• Investment bankers are counting on a surge in dealmaking to boost their bonuses.

When Wall Street's biggest banks report earnings this week, led by JPMorgan Chase, investors will be listening closely for clues about how a changing interest-rate environment could impact business in 2025.

The Federal Reserve in September cut the so-called federal funds rate by 50 basis points — the central bank's first cut in more than four years. The September 18 move took place too late to impact third-quarter results, but stock research analysts are expected to pepper executives this earnings season about what a lower interest-rate environment might mean for business going forward.

Lower rates can be a mixed blessing for banks. On the one hand, the Fed's campaign to increase the cost of borrowing has contributed to an era of sky-high returns for traditional lenders like JPMorgan, which have been making more money on loans than they have been paying for deposits. But that party was never going to last forever. (Indeed, top JPMorgan exec Daniel Pinto warned last month that stock analysts' so-called NII expectations were too high.)

Plus, lower rates could help unleash the dealmaking backlog that investment bankers have been talking about since the pandemic-era M&A boom started to slow in 2022. Their bonuses are counting on it.

Speaking of bonuses, third-quarter results will also be closely watched on Wall Street as an indication of how well investment bankers may get paid this year.

JPMorgan and Wells Fargo will kick off earnings on Friday, followed by Goldman Sachs, Citi, and Bank of America on Tuesday. Morgan Stanley will report its earnings on Wednesday. Here are the top four things to look for this bank earnings season:

Investment banking

Investment bankers have been predicting dealmaking will return since it started slowing in 2022. But this year, there are strong signs that companies are ready to start going public and merging again.

Preliminary data compiled by LSEG shows 425 mergers globally so far this year valued at more than $1 billion. That's up 24% from the same period in 2023. What's more, deals valued at greater than $10 billion were recently up 39% compared with the same period last year.

The number of companies going public is also soaring. 106 US companies have gone public through the third quarter, raising a total of $24.7 billion, according to IPO tracker Renaissance Capital. That's up from 71 in 2022 and 108 in 2023 and on track to beat the $27 billion raised in those two years.

Third-quarter results — and commentary about 4Q dealmaking so far — will be closely watched for further signs of progress in M&A, equity underwriting, and debt underwriting.

Trading

At the Barclays Financial Services conference in September, big bank executives warned that trading revenues may be muted compared to 2023.

Goldman Sachs CEO David Solomon described a "more challenging macro environment, particularly in the month of August," and warned that the bank's trading business "is trending down close to 10%." Solomon cited the bank's revenues for FICC, or fixed-income, currencies and commodities, saying that results were "very, very strong" in the third quarter of 2023.

At the same conference, JPMorgan's president and chief operating officer, Daniel Pinto, predicted that trading revenues would be "flat to slightly up 2%." "It was a bit more challenging environment to monetize client flows, particularly in rates," he said.

Lending

Stock analysts will be watching what banks say about net interest income, which is how much banks earn off the difference between what they pay on deposits and what they earn on loans. When the Fed started raising rates, banks were making out like bandits because they were able to charge more for loans more quickly than they were raising rates on savings accounts.

But banks have been warning that this dichotomy wouldn't last forever, and loan growth has indeed been slowing as the economy slows. Lower rates could boost lending yet again, but that could take time. In the meantime, JPMorgan's Pinto in September warned that Wall Street stock analysts' 2025 predictions for NII of between $91.5 billion and $90 billion were too high, sending the bank's stock down.

"I think that that number will be lower," Pinto said at the Barclays Financial Services conference. "We are not going to guide on that now, but the $90 billion is a bit too high."

Bonuses

Banks tend not to talk about bonuses on earnings calls, but how bankers will be paid will be reflected in C-Suite comments about dealing and trading generally — as well as their predictions for the rest of 2024 and into next year.

In good news, compensation expert Johnson Associates sees bonuses up this year across the board, an analysis that's reflective in part of Wall Street's earnings results so far this year. See here for the compensation expert's views on bonuses for debt underwriting, equity underwriting, sales and trading, and more.