Major U.S. banks, such as Goldman Sachs (GS, Financial), Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM), have capitalized on increased market volatility, boosting their trading activities. Despite concerns over interest rate hikes and economic outlook uncertainties, their third-quarter performances surpassed analyst expectations, showcasing resilience and growth strategies during turbulent times.
These banks reported record-breaking volumes in stock and fixed-income trading, alongside increased net interest income. This reflects their ability to weather the Federal Reserve's recent rate cuts, primarily due to rising loan income. The volatile quarter proved beneficial for Wall Street trading desks, especially in stock trading, where historic third-quarter results were achieved.
Goldman Sachs' CEO, David Solomon, highlighted the high level of global client activity driven by the need to constantly adapt in uncertain environments. Higher interest rates benefited banks as they absorbed cash deposits and collected fees through lending. On average, net interest income for Bank of America, Citigroup, and JPMorgan rose by 3%, demonstrating their robustness against the Fed's easing policies.
September proved particularly fruitful as executive expectations were adjusted downward. Goldman's unexpected growth marked a turnaround, especially after Solomon's earlier prediction of a potential 10% decline in trading revenue compared to the previous year. Bank of America reported a 12% increase in revenues from stock, fixed-income, foreign exchange, and commodity trading.
Citigroup's CFO, Mark Mason, attributed the surge in stock trading income to growth in index and individual stock trades, with notable advancements in programmatic and high-touch trading. Morgan Stanley, set to announce its third-quarter results, is expected to note a 2.2% increase in trading revenue, with growth in stock earnings offsetting declines in fixed income. Historically a leader in equity trading, Morgan Stanley has seen Goldman Sachs take the helm in recent years.
Moody's rating analysts noted that from 2020 to mid-2024, U.S. top five banks' debt and equity traders averaged quarterly revenues exceeding $250 billion, up from less than $200 billion between 2014 and 2019. Despite exceeding trading performance expectations, investment banking varied, with the 2021 trading boom largely dissipated. However, hopes for acquisition activity stimulated by lower rates may aid traders.
Remarkable stock underwriting success was seen at Goldman, where revenues surged beyond expectations. Both executive and economic outlooks remain cautious, with JPMorgan's CEO, Jamie Dimon, acknowledging potential economic turbulence. Ultimately, large banks are navigating through this period robustly and may be poised to thrive when capital becomes affordable, potentially embracing mergers and IPOs.