The nation’s largest banks reported robust financial results for the fourth quarter and full year of 2024, exceeding analysts’ expectations and projecting optimism for the economic outlook under the incoming Trump administration. JPMorgan Chase, the largest bank, announced profits of $14 billion for the quarter and $59 billion for the year, while Wells Fargo reported $5.1 billion and $20 billion respectively. Citigroup also surpassed estimates, posting $2.9 billion in quarterly profits and $12.7 billion for the year. Goldman Sachs rounded out the positive trend with $4 billion in fourth-quarter profits and $14 billion for the full year, highlighting success in facilitating lending to risky companies, a key indicator of healthy credit markets. This overall positive performance fueled a sense of optimism, with JPMorgan Chase’s CFO referencing Keynesian “animal spirits” to capture the prevailing market sentiment.
The banks’ strong performance was partially anticipated, mirroring the overall stock market surge in 2024, which saw a 23.3% increase. Lenders capitalized on this buoyant market and a resurgence in corporate financing activity to bolster their profits. Share prices continued to rise in pre-market trading following the earnings announcements. However, the expressed optimism stands in contrast to the usual cautious stance adopted by bankers, particularly given the uncertainties surrounding interest rates, deal-making, and the geopolitical landscape. This unusual bullishness speaks volumes about their confidence in the near-term economic prospects.
A key driver of this optimism is the anticipated surge in corporate financing activities, including mergers and acquisitions and initial public offerings, under the new administration. Investment bankers thrive in environments conducive to such activities, and the major banks uniformly expressed expectations of a boom. Wells Fargo noted that corporate clients perceive the incoming administration as business-friendly and pro-growth, creating a fertile ground for deal-making. This positive sentiment is already translating into tangible results, with Goldman Sachs successfully offloading some of its “historical principal investments” at a profit.
While the overall outlook is positive, certain challenges remain. The devastating wildfires in Southern California pose a potential threat to the financial sector. While major lenders don’t anticipate significant losses, they are closely monitoring the situation. Concerns exist around potential pressure on insurance companies, which rely on bank financing, due to claims related to destroyed properties. While mortgages are typically insured, the knock-on effect on the insurance industry could have broader implications. Banks are currently assessing the damage on a case-by-case basis to determine the full extent of the financial impact.
Despite the generally positive results, Wells Fargo’s revenue fell short of expectations, attributed to persistently high mortgage rates impacting their substantial home loan business. Furthermore, the bank acknowledged that some lower-income consumers are grappling with the cumulative effects of inflation. These factors introduce a note of caution into the otherwise optimistic narrative. While the banks generally embrace the return of a Trump presidency, there is also an acknowledgement of potential downside risks associated with his economic policies.
JPMorgan Chase highlighted the potential for increased public spending under the new administration to fuel inflation and trigger interest rate hikes by the Federal Reserve. Such a scenario could dampen consumer and corporate spending, potentially leading to an economic downturn. Citigroup echoed this sentiment, observing that while corporate clients are generally optimistic, they remain wary of policy uncertainties surrounding tariffs, immigration, and tax reforms, and are carefully evaluating their potential impact. This complex interplay of potential positives and negatives creates an atmosphere of anticipation and cautious optimism as the financial world awaits the unfolding economic landscape under the new administration.
