US banking giants reap gains from dealmaking rebound, trading bump

By Nupur Anand, Tatiana Bautzer and Saeed Azhar

NEW YORK (Reuters) -Large U.S. banks expressed optimism about the investment banking outlook for the rest of the year after dealmaking rebounded in the second quarter, as they reported in earnings on Tuesday. 

Yet lenders stayed cautious about the uncertain economic environment and U.S. tariff policies, weighing how consumers might react to a potential surge in prices. As tariff announcements roiled markets last quarter, banks' trading desks cashed in.

JPMorgan Chase, Citigroup and Wells Fargo beat profit expectations on Tuesday, backed by the financial health of consumers and businesses.

"The capital markets are finally exhaling, and for the big money center banks, that means a significant rebound in fee income," said Laurent Birade, Moody’s banking industry practice lead. "The real story for the big banks this earnings season will be the resurgence of their investment banking and trading engines, poised to drive double-digit fee growth through 2025."

On Wednesday, Goldman Sachs , Morgan Stanley and Bank of America will report results on Wednesday.

JPMorgan's investment banking fees came in higher than their earlier guidance, growing by 7% to $2.5 billion. Troy Rohrbaugh, co-CEO of JPMorgan's commercial and investment bank, had said in May fees could fall by a mid-teens percentage.

Investment banking revenues at the largest U.S. lender were helped by higher debt underwriting and advisory fees, while equity underwriting fees dropped.

Citigroup also reported a 15% jump in investment banking revenues to $981 million. It was buoyed by momentum in mergers and acquisitions, mainly in healthcare and tech, and strength in convertibles and IPOs.

CEO Jane Fraser Jane Fraser told analysts the bank's M&A pipeline is "excellent," with the bank working on most of the biggest transactions of the year.

"There is, in general, more growing familiarity with how to deal with uncertainty and volatility and the impact of tariffs, even if uncertainty persists," Citigroup Chief Financial Officer Mark Mason told journalists on a conference call. "The general sentiment has improved a bit."

Wells Fargo reported an 8% uptick in investment banking revenue to $463 million. "It certainly seems like volumes are picking up," Wells Fargo Chief Financial Officer Mike Santomassimo told reporters on a conference call.

While mergers and acquisition ground to a halt in April after U.S. President Donald Trump announced plans to impose tariffs on numerous countries, optimism has picked up.

MIXED FEELINGS

"Investors have come back to the reality that the U.S. economy is strong... the stock market's reflecting that," BNY CEO Robin Vince told reporters on a conference call.  

While bank executives expect deals to come back in the second half of the year, they also expressed some caution about the broader economy. 

JPMorgan CEO Jamie Dimon said forecasting is very complex, flagging "significant risks" from tariffs and trade uncertainty, worsening geopolitical conditions, high fiscal deficits, and elevated asset prices.

The market volatility caused by tariffs has benefited banks' trading desks. Citi's markets revenue jumped 16% to $5.9 billion, its best performance since the second quarter of 2020.

Following earnings releases, shares in Wells Fargo, which cut its net interest income forecast, slumped 6.3%. JPMorgan was down 0.7%. Citigroup's shares jumped roughly 5%, touching their highest level since the 2008 financial crisis, as it announced plans to buy back at least $4 billion in stock.

Industry executives are hopeful that they will benefit from lighter regulations under Trump. Lenders recently also performed well at Federal Reserve's stress test and showed they have enough capital to withstand possible adverse scenarios.

"Currently, the trading environment looks good, investment banking pipeline is picking up and so there is potential for banks to make more money," said Matt Stucky, chief portfolio manager of equities at Northwestern Mutual Wealth Management.

(Reporting by Nupur Anand, Tatiana Bautzer and Saeed Azhar in New York, writing by Carolina Mandl, editing by Lananh Nguyen and Nick Zieminski)