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This Week in Earnings – Q4'24

The Sector Beat: U.S. Banks

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Our thought leadership this week addresses:​​
25 min. read

Based on interactions with clients and external colleagues, it’s busy! Perhaps those animal spirits are indeed being brought to ground. Over the past two weeks, we published our groundbreaking Inside The Buy-Side® thought leadership – our Earnings Primer®, which comprises investors and analysts across sectors and Industrial Sentiment Survey®, which comprises sector-dedicated investment professionals. One clear trend is a hunger for growth in 2025 and a renewed focus on reinvestment. We talk about this and more in our The Big So What™ webinar.

With the U.S. presidential inauguration just around the corner, one important call out that we wrote about in our Annual Letter to Our Clients is President-elect Trump’s unconventional and rapid-fire communication methods through X and Truth Social, which are poised to create both challenges and opportunities for companies. We recommend the creation of “Trump Task Forces”, consisting of teams from investor relations, communications, legal, public relations, and senior leadership, tasked with monitoring remarks that could raise investor questions and/or concerns, especially if your company or industry faces criticism.

The Big So What™ Q4'24 Earnings Season Webinar banner

In case you missed it, you can access a replay of our webinar The Big So What™ – Q4’24 Earnings Season. Thank you to all who attended the session live and submitted questions!

In today’s thought leadership, we cover:

Key Events

Inflation

  • The December consumer price index increased a seasonally adjusted 0.4% on the month, roughly in line with expectations, putting the 12-month inflation rate at 2.9%. However, excluding food and energy, the core CPI annual rate was 3.2%, a notch down from the month before and slightly better than the 3.3% forecast. (Source: U.S. Bureau of Labor Statistics)
  • U.S. producer prices rose less than expected in December as higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward trend after progress had stalled in recent months. The producer price index for final demand rose 0.2% last month after an unrevised 0.4% advance in November, below forecasts of a 0.3% climb. (Source: U.S. Bureau of Labor Statistics)

Retail Sales

  • Retail sales rose 0.4% last month after an upwardly revised 0.8% gain in November, below estimates of 0.6%. YoY, retail sales increased 3.9% in December. Sales at auto dealerships rose 0.7% after accelerating 3.1% in November. Receipts at furniture stores shot up 2.3% while those at clothing retailers rebounded 1.5%. (Source: Commerce Department)

Labor Market

  • Initial jobless claim filings totaled a seasonally adjusted 217,000, an increase of 14,000 and higher than the estimate for 200,000. Claims data tend to be volatile at the start of the year, but have continued to signal low layoffs that are underpinning the labor market and broader economy. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, fell by 18,000 to 1.859 million in the week ended January 4th. (Source: Labor Department)

Israel-Hamas War

  • Israeli Prime Minister Benjamin Netanyahu said negotiators have reached an agreement on a cease-fire in the Gaza Strip that would free Israeli hostages, ending two days of debate that had underscored the pact’s fragility. Netanyahu’s office told the families of hostages that preparations were under way for the possibility of the deal going into effect as soon as Sunday. (Source: WSJ)

Tariffs

  • President-elect Donald Trump on Tuesday announced plans to create a new agency called the External Revenue Service to collect tariffs and other revenues from foreign nations. “We will begin charging those that make money off of us with Trade, and they will start paying,” Trump said on Truth Social. He compared his planned creation to the Internal Revenue Service, which is the nation’s domestic tax collector. (Source: Associated Press)

Recap

Inside The Buy-Side® Q4’24 Earnings Primer®

As noted last week, following last quarter’s survey which found a notable divergence in stances, with the highest level of bears registered in over a year and downward guidance revisions expected, the Voice of Investor® captured in this quarter’s survey reveals a notable pickup in sentiment but with new and persistent challenges tempering outright bullishness, including policy uncertainty and tariff concerns.

Key takeaways from our survey include:

  • Notable Step Up in Optimism Captured, with Investor Sentiment and Perceived Executive Tone Reaching Heights Not Seen Since Mid-2021
  • Nearly 8 in 10 Investors No Longer Expect a U.S. Recession Amid Promising 2025 GDP Growth Projections; Despite a Prominent Focus on Growth and Outsized Support for Reinvestment, Views are Clouded by Policy Uncertainty and Potential Tariff Impacts
  • Surveyed Investors Largely Report Being Net Buyers Despite Concerns Over Stretched Valuations, with More Viewing Small-Caps as Compelling
Cover of Corbin Advisors Q4'24 Inside The Buy-Side® Earnings Primer®

The Sector Beat: U.S. Banks

Big Banks kicked off Q4 earnings season on a positive note, largely delivering results that topped Street expectations on both the top- and bottom-lines, with net interest income (NII) guidance for 2025 also well-received by analysts. Overall results have been powered by strength in capital markets, investment banking, and trading activity. Collectively, among the six major U.S. banks that have reported this week, combined profits for Q4 have topped $36B, more than double year-ago levels. Note, analyst previews had already flagged expectations for outsized earnings growth for the Financials sector, led by banks, though with some attributing the gains to easier YoY comps.

Expectations around the broader industry backdrop under a Trump 2.0 administration featured heavily on earnings calls. Bank executives highlighted a notable improvement in customer sentiment post-election, fitting with widely discussed expectations for a more favorable regulatory environment and pro-growth agenda to serve as tailwinds in the year ahead. Commentary was particularly positive around the anticipation for a pickup in M&A activity based on the tenor of conversations since the election. At the same time, commentary around loan growth is mixed, with many pointing to expectations for improvement toward the middle- or back-half of the year.

While bank executives welcome the likelihood of a more supportive regulatory environment under the new administration, they also point to concerns around broader policy uncertainty and remain grounded as it pertains to 2025 optimism. While acknowledging the continued resilience of the U.S. economy and broadly improved sentiment, many flag heightened risks around the impact of tariffs and a potential trade war, along with ongoing geopolitical turmoil. Taken together, executives strike a cautious but leaning mostly positive tone toward the year ahead, remaining prepared to execute for various scenarios.

Market Reaction

After putting in strong performance in 2024, the sector got another boost from earnings this week with bank stocks rallying on Wednesday after the first round of results from Citi, Goldman Sachs, JPMorgan, and Wells Fargo. As of Thursday’s close, the Invesco KBW Bank ETF had gained nearly 7% on the week, outperforming the S&P 500 by more than five percentage points. Buoyed by positive investor sentiment following the U.S. election, bank stocks rallied sharply in November before giving back some of those gains into year end. With this week’s surge, the group is back near recent highs, up 45% over the past year compared with the 24.6% gain for the S&P 500.

Chart: Invesco KBW Bank ETF vs. S&P 500, Indexed 1'16'24 to 1'16'25
Source: FactSet

Key Themes

Macro and Outlooks

Continued U.S. Economic Resilience and Broadly Bullish Post-Election Sentiment Support Optimistic Views for the Year Ahead; However, Trump 2.0 Policy Uncertainty and Ongoing Geopolitical Tail Risks Temper Enthusiasm

  • JPMorgan ($711.1B): “The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business. However,two significant risks remain. Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time. Additionally, geopolitical conditions remain the most dangerous and complicated since World War II. As always, we hope for the best but prepare the firm for a wide range of scenarios.”
  • Bank of America ($353.6B): “We finished 2024 with good momentum as we enter 2025. The economy is resilient and healthy. The consumer continues to spend at a solid and healthy rate. Employment levels are strong. Our loans have now grown for several quarters in a row. Deposits have grown for six straight quarters. The rate environment continues to be constructive. And then the added value in the last couple of quarters is the fee businesses have come on strong, given the extra market activity. All that sets us up well for 2025.”
  • Wells Fargo ($251.0B): “The U.S. economy has performed very well and remains strong, and lower inflation and unemployment position the economy well into 2025. We are predominantly a U.S. bank. We succeed when the country succeeds, so the incoming administration’s support of U.S. businesses and consumers gives us optimism as we look forward. Additionally, the incoming administration has signaled a more business-friendly approach to policies and regulation, which should benefit the economy and our clients.”
  • Goldman Sachs ($190.2B): “The economy in the U.S. is quite constructive still, but it’s a complicated world. And I think we all should be on our toes and be prepared for the unexpected because I’d tell you, every single year, the consensus that the people tell me in January, the year turns out to be different than the consensus. And I’m sure this year there will be some surprises to the ups, and there will be some surprises to the downs, as there always are…There’s no question that there’s been a sentiment shift broadly as I talk to CEOs since the election, but that doesn’t stop us from constantly thinking about how the environment can change, how that can evolve.”
  • Citigroup ($148.0B): “We entered 2025 with strategic clarity and good momentum across all our businesses. From the global macro perspective, economies have done a good job tolerating hikes from central banks and inflation has clearly been receding. While policies will certainly impact economic activity, whether in the form of tariffs or taxes, 2025 doesn’t look that different from 2024. The U.S. remains at the heart of the macro picture. Growth is not only being driven by the higher-end consumer, but also by a strong innovative corporate ”
  • Bank of New York Mellon ($58.3B): “As we think about the operating environment in 2025, just a month ago there were clear signs of optimism with the U.S. election behind us, inflation moderating, and the Fed having begun its path toward lower rates. But with the turn of the year, we view the outlook for 2025 as a little more uncertain, with persistent tail risks across geopolitical tensions and conflicts, uncertainty about trade and fiscal policies, and volatility in markets.”

Banks Welcome Anticipated ‘Pro-Growth’ Agenda and ‘Balanced’ Approach Under New Administration, but Uncertainty Lingers throughout Commentary

  • JPMorgan ($711.1B): “Regarding regulation, we have consistently said that regulation should be designed to effectively balance promoting economic growth and maintaining a safe and sound banking system. It is possible to achieve both goals. This is not about weakening regulation, but rather about setting rules that are transparent, fair, holistic in their approach, and based on rigorous data analysis, so that banks can play their critical role in the economy and markets.”
  • Citigroup ($148.0B): “We’ve been increasing the amount of capital turn over the last few quarters. I’m also happy to see a more aggressive Basel III scenario firmly off the table. We have, nonetheless, a 13.1 CET ratio that we put in the plan that can change over time as well. But there’s not complete certainty around where the capital requirements are going to go. We hope there will be a holistic one that is reflective of the risk profile of the bank that’s been improving significantly over the last few years.”
  • Goldman Sachs ($190.2B): “The world is a complicated place, and there’s a lot going on in the world. Markets react and can change their sentiments very quickly. We obviously have a new administration with that change. There are a bunch of things that have people excited from a business environment, a lower regulatory touch environment, etc. But at the same point, there are a broad array of policy initiatives that can all have an impact on market sentiment and the direction of travel. At the moment, there’s uncertainty. When you look broadly across immigration policy, trade policy, tax policy, energy policy, we’ll get more clarity around all of this, but there are different outcomes.”
  • Bank of New York Mellon ($58.3B): “We’re a capital markets-oriented company. We’re a financial services platform company. And so we’re pro-growth. We benefit from growth. And it’s very encouraging, particularly here in the U.S. with the new incoming administration, to hear this pro-growth mantra.”
  • M&T Bank ($32.2B): “We’re hopeful that new administration puts people in place that are more balanced and really focused on the true risks of the industry. You look at Governor Bowman’s speech that she gave last week in California. She is prioritizing safety and soundness risk, which is really critical and important. Committing to tailoring and still making sure that happens. And also making sure we have increased transparency throughout the industry and how things are done, specifically stress testing. So, we’re optimistic and feel really good about it. And we’ll just see what happens when the President gets in office on Monday and starts making some decisions on regulatory people in these spots.”

Borrowing Trends are ‘A Mixed Bag’; Sequential Performance Largely Muted, but with Optimism Building for the Quarters Ahead

  • JPMorgan ($617.0B): “Given the significant improvement in business sentiment and the general optimism out there, you might have expected to see some big open loan growth. We are not really seeing that. I don’t particularly think that’s a negative. I think it’s probably explained by a combination of wide-open capital markets, so many of the larger corporates accessing the capital markets, and healthy balance sheets in small businesses, and maybe some residual caution. And maybe there are pockets in some industries where aspects of policy uncertainty are making them a little bit more cautious than they otherwise would be. But we’ll see what the new year brings.”
  • Bank of America ($353.6B): “There were several quarters there where we were bouncing around flattish on loans. In Q2, we added $9B of loans. In Q3, we added $19B. In Q4, we added $20B. So, the loan growth has picked up a little bit. We can see more optimism with clients, a little more activity, a little more demand from clients for loan growth.”
  • Wells Fargo ($251.0B): “As you look at the consumer…mortgages will likely continue to decline a bit given the rate environment we’re in. We did see a little bit of incremental refinance activity in But now with rates back up, that seems to be back down again. We should see some card growth as we go through the year, and we should start to see some growth in the auto portfolio, as well. On the commercial side, some of it will be new account and new client growth as we go through the year. So it should come from a lot of different areas across the population, but I would expect to see that a little bit more as we go into middle and second half of the year.”
  • U.S. Bancorp ($74.7B): “For the purposes of our forecast and how we’re thinking about 2025, we have pretty modest loan and deposit growth. Now, in terms of sentiment and things of that variety, clearly, there’s a lot of positivity. Our client base is excited. There’s a lot of momentum in our pipelines that we can see has not yet translated into elevated loan growth. Perhaps that changes, hopefully, in the back half of the year, and we can see that pickup in loan growth.”
  • M&T Bank ($32.2B): “If you look from a borrower perspective, what we’re seeing right now in the marketplace is kind of a mixed bag, to be honest with you. If you look at our specialty businesses, specifically in corporate and institutional fund banking, dealer financial services, all those seem to be pretty robust and going very strong. If you look at our middle market businesses, not as much so there. It tends to be a little bit more soft, I think, waiting for more certainty to come out from the administration and how things play out.”

A ‘More Conducive Macro Environment’ Opens Door for a Surge in Deal Activity for 2025; Execs Note Optimism in Market Has Led ‘Intensity’ of Client Dialogues to Increase

  •  JPMorgan ($711.1B): “Investment Banking fees were up 49% YoY, and we ranked number one with wallet share of 9.3% for 2024. Advisory fees were up 41%, benefiting from large deals and share growth in a number of key sectors. Underwriting fees were up meaningfully with debt up 56% and equity up 54%, primarily driven by favorable market conditions. In terms of the outlook for the overall Investment Banking wallet, in light of the positive momentum, we remain optimistic about our pipeline.”
  • Morgan Stanley ($215.0B): “Looking ahead to 2025, our M&A pipelines are healthy and diversified, outpacing recent years. Financial sponsors are joining corporates to drive activity, evaluating exit opportunities for long-held assets. CEO and boardroom confidence continues to improve as valuations stabilize and financing markets remain strong. Our business is well positioned for strong continued rebound in dealmaking activity.”
  • Goldman Sachs ($190.2B): “The intensity of our client dialogues has been increasing, and we’re seeing renewed CEO confidence and desire from sponsors to transact. While there remains some policy uncertainty, there is an expectation that the regulatory burden will be reduced, which should serve as a tailwind to risk assets and capital deployment. We are optimistic on the outlook for 2025 and expect a further pickup in M&A and IPO activity.”
  • Citigroup ($148.0B): “Banking revenues were up 27%, largely driven by investment banking with fees up 35% as we saw growth across all products. In M&A, growth was driven by continued strong client engagement as well as the completion of previously announced acquisitions, given the more conducive macro environment.”

Investments Focused on Digital Automation, AI, and Technology Infrastructure to Enhance Operational Performance; Headcount Actions in Focus and Topic of Questions

  • JPMorgan ($711.1B): “In technology, we’re putting a lot of effort into improving the ability of our software engineers to be productive as they do development. All else equal, that generates a little bit of efficiency. We also have a lot of focus on the efficiency of our hardware utilization…Finally, if you look at the headcount trajectory of the company over the last few years, we have grown a lot, and that has been for very good reasons. And it has contributed quite a bit to our growth and our ability to run the company efficiently. But any time you have that quantity of headcount growth, as well as that rate of headcount growth, you have to believe, all else equal, that some amount of inefficiency has been introduced. And so this year, as we went through the budget cycle, we asked people at the margin to try to support the growth of the company while living within their means on the headcount front.”
  • Bank of America ($353.6B): “On investments that we made, we added bankers and advisers across most of our businesses in 2024, and we also increased investments in our brand with significant sponsorships like the Masters and FIFA to name a few. And we increased our investments around technology as well as financial centers. We’re a growth company, and we continue to invest in our future. As far as headcount goes, we’ve managed our headcount carefully, and we’ve held it fairly flat through the four quarters of 2024 at around 213,000 people.”
  • Wells Fargo ($251.0B): “We continue to invest in technology and digital platforms to transform how we serve both our consumer and commercial customers. This includes continuing the transition of our applications to the cloud, migrating into new data centers and investing in data platforms to drive more insights. In addition, we continue to improve our digital capabilities for our customers, specifically our mobile account opening and onboarding as well as Zelle. We plan to continue hiring priority sectors to help drive growth in investment banking and capital markets. We also plan to continue hiring relationship bankers within commercial banking to build out coverage in underpenetrated markets in key industries.”
  • Goldman Sachs ($190.2B): “Operating efficiency remains one of our key strategic objectives. And while we have made progress, we believe there are significant opportunities to drive further efficiencies across our business. First, we are optimizing our organizational footprint by expanding our presence in strategic locations and calibrating our pyramid structure. Second, on spend management, we are optimizing transaction-based expenses and looking to more efficiently manage our vendor and consultant relationships. Lastly, we are leveraging AI solutions to scale and transform our engineering capabilities, simplify and modernize our technology stack and drive productivity. These efficiencies will allow us to further invest for growth and improve client experience.”
  • Citigroup ($148.0B): “We have continued to innovate to improve the client experience and our efficiency. We are now live with City Payments Express in 18 countries and have converted four million retail bank customers to our simplified banking platform in the U.S. We accelerated our use of AI, arming 30,000 developers with tools to write code, and launched two AI platforms to make 143,000 colleagues more efficient. The investments we’re making to modernize our infrastructure, streamline processes, and automate controls are changing how we run the bank.”
  • Bank of New York Mellon ($58.3B): “Our investments in digitization and AI over the last couple of years have laid a solid foundation for us to become more efficient and to drive top-line growth over time. We’re embracing the power of AI to make it easier for our employees to do their jobs and channel their energy towards new innovations.”

In Closing

Overall U.S. Big Bank commentary reflects optimism toward the year ahead and the potential to build on solid momentum seen post-election, though enthusiasm remains somewhat tempered by ongoing geopolitical risks and unknowns around how policy will unfold under a Trump 2.0 administration. As observed in our Q4’24 Inside The Buy-Side® Earnings Primer®, the heightened election uncertainty that prevailed in the Fall has been replaced by policy uncertainty.

And while investors are prioritizing growth to margins 2:1, U.S. Banks continue to focus on efficiency measures, identifying opportunities to streamline and scale leaner – a future boost to operating leverage as growth rolls in.

With Inauguration Day just a few days away, we’ll soon find out whether Trump plans to announce onerous tariffs on day one, or follows a more gradual approach, in line with some of the recent previews floated in the press. That said, the unpredictable nature of upcoming policy and communications are sure to keep markets and executives on tinder hooks in the days and months ahead. What’s abundantly clear is an abundance of unknowns. We recommend our clients strike a tone grounded in operating from a position of strength but with a nimble mindset, focusing on the controllable and leveraging past experience to drive confidence in swift adaptation and execution.

As always, we will continue to highlight evolving themes in our ongoing weekly earnings Sector Beat coverage to provide insightful information on the macroeconomic landscape and factors impacting market sentiment.  

Up next week: Industrial Sentiment Survey® Recap and the Industrial Sector Beat.  

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