The largest U.S. banks posted substantial fourth-quarter revenue and profit gains thanks to a resurgence in Wall Street dealmaking.

Investment banking revenue soared compared to the same quarter a year ago, with the largest banks all reporting increases of 25% or more. The two biggest, JPMorgan Chase (JPM) and Bank of America (BAC) led the way with whopping gains of 49% and 44%, respectively.

Investors cheered the results. The SPDR S&P Bank ETF (KBE) gained more than 8% last week, recovering most of the decline posted since early December, as shares of JP Morgan, Wells Fargo (WFC), Citigroup (C) and other banks surged.

That December downturn mirrored broader stock market concerns centering on lingering inflation pressure and how the Federal Reserve may respond. While that anxiety persisted into 2025, last week's results offered a measure of comfort for investors in big banks.

Deals Drive Growth

The investment banking growth exhibited by large banks in the fourth quarter reflected increased activity in securities underwriting and mergers and acquisitions. The Fed's interest rate increases beginning in March 2022 had dampened both.

Corporations steered away from financing operations with debt at higher interest costs. Likewise, higher rates weakened enthusiasm for mergers and buyouts. But that has begun to change now that the Fed has shifted gears, cutting its benchmark rate three times since September.

In December alone, U.S. corporations issued $67.8 billion in bonds, almost double the $35.7 billion in corporate issuance in the same month a year earlier. Meanwhile, a long-anticipated rebound in mergers and acquisitions (M&A) appeared to take hold in 2024, with global deals totaling $3.4 trillion, up 15% from 2023.

Morgan Stanley estimates that private equity and venture capital firms still have about $3 trillion in uncommitted capital that could further fuel an M&A rebound in 2025. That, of course, would continue boosting investment banking revenue.

Good Timing

The fourth-quarter investment banking boon came at an opportune time for large banks.

For much of the past two years, banks had enjoyed ongoing expansion of net interest income, courtesy of the Fed's rate hikes. But once the Fed stopped hiking and started cutting, those gains halted. So investment banking helped pick up the revenue and earnings slack.

JPMorgan's results offer a prime example. The firm's net interest income in the fourth quarter fell marginally from the third quarter and dropped 3% from the fourth quarter of 2023.

Yet overall revenue rose 10%, reflecting the investment banking surge and a 21% increase in asset management fees. The latter, of course, benefited from strong U.S. stock market returns. The revenue gain and a 7% decline in non-interest expenses produced a 50% increase in quarterly profit year over year.

Results at other large banks told similar stories with the uptick in investment banking business constituting the common thread.