US 4th quarter earnings season kicked off with the major banks reporting results that were broadly stronger than expected.
Most large banks beat earnings estimates, with many also topping revenue forecasts, a sign that the economy remains on solid footing.
Now the nation's biggest banks turned in one of their strongest years on record in 2025, driven by a surge in dealmaking, borrowing, and trading activity.
Goldman Sachs and Morgan Stanley posted record annual revenue in their investment banking, as well as trading businesses, and together with JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, the six largest banks generated about $583 billion in revenue in 2025, and combined profits totaled about $157 billion up 8% and just below the pandemic boosted peaks seen in 2021.
Well joining me here on this Friday morning at the New York Stock Exchange is Brendan Brown, financial institutions managing director for S&P Global ratings.
Brendan, great to have you here.
Thank you so much for joining me.
Thanks for having me.
Been quite the start to 2026, but as earnings season gets underway here in the US, we've heard from the big banks.
So given that trading desks drove a big share of bank profits last year, how sustainable do you think this momentum is as we head into 2026?
Well, trading definitely benefited from everything that's happening in the economy, some of the volatility and volumes out there.
There were especially strong results in equity trading, but also fixed income.
It's hard to predict if that will continue, but certainly there's a lot happening in 2026, so it may stay strong, but definitely that's one of the hardest parts to predict of a bank's income statement.
However, there's other tailwinds as well.
Investment banking, as you mentioned, has picked up.
Mergers and acquisitions in the economy are picking up, and it looks like they might be stronger in 2026, perhaps in 2025.
Banks are earning more advisory revenue off of that.
They're also making more off of lending with spread income.
Being up net interest income is up, loan growth was pretty strong for the money center banks, so that's a tailwind as well, and that could offset if trading is a bit weaker this year than last.
And I think we are keeping a close eye on those tailwinds, and I think this earnings season we're paying particular attention to some of those earnings calls given everything else that's happening outside of these organizations and could potentially affect the bottom line, especially for big banks.
Now when it comes to potential risks out there for the banks, how much does a leverage play when it comes to lending.
Leverage is important, obviously, and you might be referring to leverage lending in the economy.
The banks through their investment banking work, they participate in that.
That's a driver of debt underwriting.
Obviously private credit is one of the topics of the day, and that's a source of competition against the banks, but also something they participate in.
They lend to the private credit providers.
So they participate directly on the balance sheet, but also through these partnerships with private credit and nonbank financial institutions in general.
Yes, and Brendan, you cover the big banks and so far we've heard from four of them, the main ones that you focus on.
So what would you say were the key takeaways from the earnings and what do you make of the guidance moving forward?
Well, as we talked about earlier, revenue has been pretty good, driven by trading and investment banking, lending as well, and the four big banks have gotten positive operating leverage basically.
Bank of America and Wells Fargo had especially good improvements in their earnings compared to the prior year.
JP Morgan has been the strongest earner of the large banks, but it's had a little bit of pressure because of expense growth.
JPMorgan has said that they've been spending a lot on investments to try to capture growth for the future, whether in technology, people, and branches.
They're expecting 9% expense growth in 2026, which is pretty high.
Again, they remain the most profitable.
Bank of America and Wells Fargo have closed the gap a bit.
Citi is also improving, but they've been the weakest earner.
They're going through a multi-year journey of improving their earnings, and they're making progress.
They had a return on tangible common equity of almost 9% last year.
They expect 10 to 11% in 2026, so still behind the other big peers, but even some positive momentum for them.
And finally, before I let you go, you mentioned investment and technology, so I do want to ask you the role that AI is playing.
Give us an idea of what's happening.
I think there's a lot of big investments and experimentation with AI.
The large banks are trying to deploy it across their businesses, whether in client facing roles or in risk management.
In a whole variety of ways just like other corporations are throughout the economy, I think it's still early days, but it has a lot of promise to it.
It's hard to predict how long it will take or exactly what the impact will be, but it's a big tool to try to win new business, 2, try to be more efficient and control your expenses as well.
So a lot more to come on that front.
And finally, before I let you go, we have about 60 seconds here, but when we step back and look at the year to date performance of the financial sector within the S&P 500, we know that there are other outperformance sectors when it comes to the S&P 500.
So obviously when it comes to the big banks versus say regional or other banks, we know this is very different.
But what do you expect to see as we head into 2026 in terms of headwinds?
Well, we think the banks are in a really good position right now.
We actually in our ratings, we don't have a single negative outlook on any bank we rate.
The headwinds, there's a few different things.
One, there's still economic uncertainty.
It's hard to know exactly where geopolitics, inflation, tariffs could there's some downside risk in the economy, certainly, so that's one headwind.
Another big story.
Out there a lot of people view this as a tailwind, but when you're a credit analyst, you look at it as a risk, and that's regulatory and supervisory reform.
This is probably the most consequential period for regulatory and supervisory reform since after the global financial crisis.
On the equity investor side again, they look at that positively, but on the credit side we're looking at it with a little bit more caution and seeing how does that play out this year.
The biggest piece will be what do the regulators propose on capital standards.
If there's a lot of weakening, it might be good on the equity side.
On the credit side, we'd view that more cautiously.
Well, Brendan, I appreciate your time.
Thank you so much for breaking it all down and simplifying the earnings for us.
Thank you very much.
Thank you.
