On January 17, several U.S. banks reported increased profits in the fourth quarter, continuing a positive trend for the industry. This growth was attributed to a rise in capital markets offsetting a decline in loan demand.
While traditionally associated with Wall Street giants, investment banking and trading have become crucial for mid-sized banks, offering lucrative fee opportunities in a thriving dealmaking climate.
"Dealmaking is back with a vengeance," commented Danni Hewson, head of financial analysis at AJ Bell.
The assistance from investment banking has enabled mid-sized banks to weather the decrease in loan demand caused by higher interest rates deterring borrowers.
Looking ahead, Hewson noted, "If the incoming president follows through on promises for deregulation and lower taxes, the outlook for 2025 will continue to generate a lot of excitement among banking bosses."
LSEG data confirmed that Fifth Third Bancorp, KeyCorp, Huntington Bancshares, and others exceeded quarterly profit expectations, echoing the strong results of larger peers.
There is anticipation that mergers and acquisitions within regional banks will accelerate. Huntington's Chairman and CEO, Steve Steinour, expressed a cautious approach toward dealmaking, stating that it is not a primary focus at present.
Truist shares rose nearly 5% while Huntington stock remained steady after an initial 1% increase.
Other banks, such as Citizens Financial Group and Regions Financial Corp, also reported higher profits supported by increased fee income.
Analysts foresee a potential "Trump bump" in the investment banking sector under the new administration, anticipating benefits from corporate tax cuts and relaxed regulations that may encourage deal-making activities.
Despite concerns about the sustainability of this growth amidst uncertainty surrounding Trump's trade policies, the prosperous results of Wall Street banks have deflected immediate worries.
However, loan and lease activity at Citizens, Truist, and Regions declined, with potential for further depression unless interest rates are reduced.
The Federal Reserve has signaled fewer rate cuts this year, with recent inflation data indicating a notable increase in U.S. consumer prices in December, reinforcing this direction of monetary policy.