US banks to reap bigger profits as deals rebound in third quarter

By Nupur Anand NEW YORK (Reuters) -The six largest U.S. banks are expected to report stronger third-quarter earnings next week, catapulted by a rebound in investment banking. JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and Wells Fargo are forecast to benefit from resurgent dealmaking, while a resilient economy keeps borrowers in good shape, propping up consumer and commercial lending divisions.    When major lenders begin to announce results on Tuesday, investors will pay close attention to their economic commentary and expectations for investment banking and trading. "There is going to be a lot of focus on any changes in the credit environment, impact of jobs data, and the overall economic outlook," said Mac Sykes, portfolio manager at Gabelli Funds. "Consumer confidence has been lower, the business confidence is still evolving, and we will watch out to see if there are any lingering concerns from the volatility seen earlier this year." M&A BUOYED BY EASING REGULATIONS, RATE CUTS Investment banking has rebounded after stalling earlier this year following President Donald Trump's tariff announcements. Easing regulations and expectations for further rate cuts have also helped unlock mergers and acquisitions, prompting JPMorgan to call this summer one of its busiest for dealmaking. Hiring has also picked up.  According to Piper Sandler analysts, 49 deals were announced in the third quarter through mid-September, up from 39 in the second quarter and 32 in the same period last year. Global M&A has reached $2.6 trillion, the highest for the first seven months of the year since the 2021 pandemic-era peak. M&A and initial public offerings have driven the dealmaking surge, while equity capital markets stayed robust. Some analysts remain cautious about the deal revival. "Our view on the M&A cycle is that while the bird may be flapping its wings, it hasn't quite achieved lift-off yet," Chris Kotowski, an Oppenheimer analyst, wrote. That compares with expectations for an "epic M&A boom" at the start of the year that has not materialized. Trading revenues for banks are also expected to grow. "Historically speaking, third quarter tends to be a seasonally slow period for trading … That said, Q3 2025 appeared to buck that trend," analysts at Jefferies wrote. Equities trading volumes were robust, and activity was also elevated in fixed income, currencies, and commodities, Jefferies said. Investors will also focus on forecasts for net interest income, the difference between what banks earn on loans and pay for deposits. NII expectations are likely to be solid as the U.S. economy stays resilient, analysts at Baird Equity Research wrote. The biggest lenders have said U.S. consumers remain in good financial health, and borrowers are continuing to make loan payments. Investors will watch for any changes in borrowers' delinquencies or defaults. "While there are no major concerns on the investment banking and the commercial side of the business, on the consumer side we have seen deposit levels and loan growth have remained static," said Brian Mulberry, portfolio manager at Zacks Investment Management. He is looking for any warning signs in the consumer businesses, and "there are also some growing concerns around potential defaults in some smaller firms."   Analysts will also listen to what banks say about loan demand. "Banks are sitting on a huge amount of capital, the macroeconomic environment has held steady, so will wait for management commentary to see if all these things point to a pick up in loan growth in the coming quarters," said Suryansh Sharma, analyst at Morningstar Research Services. Here is what is likely to come from the six biggest U.S. lenders in the third quarter: JPMORGAN CHASE The largest U.S. bank is expected to report on Tuesday that earnings per share rose more than 10%, driven by strong investment banking fees and markets revenue, according to LSEG estimates.  JPMorgan told investors at a conference last month that it expects its investment banking revenue to grow in the low double digits for the third quarter.  BANK OF AMERICA  EPS is likely to jump nearly 17% when it reports earnings on Wednesday, LSEG estimates showed. Investors are looking for clarity on the pace of share buybacks and capital management, which is likely to be addressed at BofA's investor day in November, UBS analysts said. Bank of America expects its investment banking fees to increase 10% to 15% in the third quarter, Chief Financial Officer Alastair Borthwick told investors at the September conference.  CITIGROUP  Analysts see Citigroup's EPS surging 26%, fueled by capital markets. Citi said earlier its investment banking fees and market revenue are expected to rise by a mid-single-digit percentage. WELLS FARGO Investors are focused on the bank's growth plans after its $1.95 trillion asset cap was lifted by regulators this year. They will also pay close attention to Wells Fargo's NII guidance, which was lowered in July and has since held steady. GOLDMAN SACHS  The Wall Street giant is likely to see a nearly 31% increase in EPS, propelled by gains in investment banking and trading, said analysts, who will gauge whether the gains are sustainable. MORGAN STANLEY Morgan Stanley's EPS is estimated to rise by more than 11%. "We believe the strength of the combined franchise across capital markets and the various wealth channels, a global footprint, and strong earnings generation creates a competitive advantage that should allow Morgan Stanley to outperform peers on revenue growth over the medium-term," Ebrahim Poonawala, a BofA analyst, wrote. Bank  Q3 EPS estimates JPMorgan 4.83   Bank of 0.95 America Citigroup 1.90 Wells 1.54 Fargo Goldman 10.99 Sachs Morgan 2.09 Stanley Source: LSEG (Reporting by Nupur Anand in New YorkEditing by Rod Nickel)

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