By Manya Saini, Niket Nishant
(Reuters) -A raft of U.S. banks reported higher fourth-quarter profits on Friday, extending a winning streak for the industry as an upswing in capital markets alleviated a hit from weaker loan demand.
Long believed to be the stronghold of Wall Street heavy hitters such as JPMorgan Chase (NYSE:JPM) and Goldman Sachs, investment banking and trading have become increasingly vital for mid-sized banks as a robust dealmaking environment offers lucrative fee prospects.
“Dealmaking is back with a vengeance,” said Danni Hewson, head of financial analysis at AJ Bell.
The boost from investment banking has helped mid-sized banks cushion the blow from lower loan demand as elevated interest rates deter borrowers.
“If the incoming president follows through on promises for deregulation and lower taxes, the outlook for 2025 will continue to generate a lot of excitement among banking bosses,” Hewson said.
Citizens Financial (NYSE:CFG), Truist Financial (NYSE:TFC), Huntington Bancshares (NASDAQ:HBAN) and Regions Financial (NYSE:RF) all surpassed expectations for quarterly profits, according to data compiled by LSEG, mirroring the stellar results of their bigger peers this week.
There are also expectations that mergers and acquisitions among regional banks will accelerate. Huntington Chairman and CEO Steve Steinour said dealmaking was not a priority, though.
“We’re not a significant acquirer. We may at some point acquire a bank, or even a non-bank, if it strategically helps us, and if it gives us distribution or product capabilities that we don’t have today, but that’s not our prime priority,” Steinour said in an interview.
Truist shares were last up nearly 5% on Friday, while Huntington stock was flat after rising 1% before markets opened.
On Thursday, U.S. Bancorp (BVMF:USBC34) and M&T Bank (NYSE:MTB) 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 increase executives’ confidence to pursue deals.
A series of rate cuts by the Federal Reserve has also cemented the resilience of the U.S. economy, though some are worried that President-elect Trump’s tariff proposals could lead to a spike in inflation.
“Questions may abound about how long the run 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 delivered robust and even record-breaking profits, no one is really thinking about the answers just yet,” Hewson added.
Still, loans and leases at Citizens, Truist and Regions fell and could remain depressed unless rates are lowered further.
The Fed, however, has projected fewer rate cuts this year than previously expected. Inflation data released earlier this week, which showed that U.S. consumer prices increased by the most in nine months in December, could reinforce that view.