By Manya Saini and Niket Nishant
(Reuters) – A host of U.S. banks reported higher fourth-quarter profits on Friday, extending a winning streak for the industry as gains in capital markets cushioned a blow from weaker loan demand.
Long believed to be the stronghold of Wall Street's heavy hitters such as JPMorgan Chase and Goldman Sachs, investment banking and trading have become increasingly essential for mid-sized banks as a robust deal-making environment offers lucrative fee prospects.
“Deal-making is back with a vengeance,” says Danni Hewson, head of financial analysis at AJ Bell.
The boost from investment banking has helped medium-sized banks cushion the blow from lower loan demand as high interest rates deter borrowers.
“If the new president follows through on promises for deregulation and lower taxes, the outlook for 2025 will continue to generate a lot of excitement among banking chiefs,” Hewson said.
Citizens Financial, Truist Financial, Huntington Bancshares and Regions Financial all beat expectations for quarterly profits, according to data compiled by LSEG, mirroring the stellar results of their larger peers earlier this week.
Truist shares were last up nearly 3% before the bell, while Financial Regions traded 0.7% higher and Huntington climbed 1.2%.
On Thursday, US Bancorp and M&T Bank also posted higher fourth-quarter profits, driven by higher fee income.
'TRUMP BUMP'
Analysts predict the investment banking sector will see a “Trump bump” under the new administration due to corporate tax cuts and relaxed regulatory oversight that could boost executives' confidence in pursuing deals.
A series of rate cuts by the Federal Reserve have also confirmed the resilience of the US economy, although some worry that President-elect Trump's tariff proposals could lead to a spike in inflation.
“There may be plenty of questions about how long the streak can last and whether Donald Trump's form of isolationism will be a boon or a curse, but as a host of Wall Street banks deliver solid and even record-breaking profits, nobody really thinks about the situation. answers yet,” added Hewson.
Still, loans and leases fell in Citizens, Truist and Regions and could remain depressed unless rates are lowered further.
The Fed, however, has forecast fewer rate cuts this year than previously expected. Inflation data released earlier this week, which showed that US consumer prices rose by the most in nine months in December, could reinforce that view.
(Reporting by Manya Saini and Niket Nishant in Bengaluru; Additional reporting by Arasu Kannagi Basil, Atharva Singh, Jaiveer Singh Shekhawat, Vedant Vinayak Vichare and Prakhar Srivasatava; Editing by Maju Samuel)