Wall Street’s major banks are poised to extend the longest investment banking slump in more than a decade, with trading once again expected to deliver the bulk of revenue in the second quarter of 2024. According to the Financial Times, the five largest US banks — JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley — are forecast to post total trading revenues of $31 billion, more than triple the $7.5 billion expected from investment banking activities.
If these projections hold when earnings are released this week, investment banking will have contributed less than 25% of Wall Street revenues — excluding retail and asset management divisions — for the 14th consecutive quarter, marking the weakest run for the sector since at least 2014. This stark imbalance underscores how investment banking has struggled to recover since the 2021 dealmaking boom, while trading has thrived amid economic uncertainty and market volatility.
Analysts expect trading revenues to rise nearly 10% year-over-year, fueled by heightened market activity driven by rising interest rates, geopolitical tensions in Ukraine and the Middle East, and economic policy shifts under Donald Trump’s renewed presidency. In contrast, investment banking revenues are projected to decline by a similar margin, continuing a multi-year slump marked by low deal volumes and a subdued equity capital markets environment.
The prolonged downturn in dealmaking reflects a sharp contrast to the vibrant investment banking climate during the pandemic years, when surging IPOs, M&A deals, and SPAC activity brought record earnings. Since then, economic instability and caution among corporate leaders have curbed deal flow, leaving advisory divisions sidelined despite consistent optimism about a pipeline recovery.
Chris Kotowski, a research analyst at Oppenheimer & Co., said the current market is more in line with historical norms than the unusually quiet 2010s, when low volatility and near-zero interest rates depressed trading revenues. “This is a normal environment, whereas the low [volatility] environment of the 2010s was the abnormal part,” he noted.
While investment banking is often valued more highly by investors due to its capital-light, high-margin nature, it has recently lagged far behind its trading counterpart. Still, investor expectations of a rebound persist. Goldman Sachs shares, for instance, recently climbed above $700 for the first time, reflecting renewed optimism despite a challenging first half of the year.
Some analysts, however, remain cautious. HSBC’s Saul Martinez acknowledged signs of improvement in market sentiment but warned that the volatility that has supported trading revenues may not continue indefinitely. “Revenue from trading has been really elevated and I don’t know that you can make the case convincingly that you’re going to see a lot of growth from here,” he said.
Earnings season begins with JPMorgan and Citigroup reporting results on July 15, followed by Bank of America, Goldman Sachs, and Morgan Stanley the next day. Together with Wells Fargo, the six banks represent the largest US financial institutions by assets. Combined net income for the group is expected to fall by about 13% year-on-year, with JPMorgan projected to post the steepest drop — a 30% decline due in part to a one-off $8 billion gain in the prior year from its stake in Visa.
While trading remains the engine of Wall Street earnings, hopes for a sustained revival in investment banking are still pinned to a more stable political and economic backdrop, which could eventually revive CEO confidence and unlock pent-up dealmaking potential heading into 2025.
