The bank earnings season commences on Tuesday, with JPMorgan Chase (JPM.US) and Bank of New York Mellon (BK.US) reporting first, followed by Citigroup (C.US), Wells Fargo (WFC.US), and Bank of America (BAC.US) on Wednesday, while Goldman Sachs (GS.US) and Morgan Stanley (MS.US) are scheduled to release results on Thursday. As deal activity accelerates, investment banking revenue is anticipated to be a key driver of fourth-quarter performance. Data from Dealogic shows that global investment banking revenue for the full year 2025 increased 15% year-over-year to $103 billion. The value of mergers and acquisitions surged 42% to $5.1 trillion. Among the consensus estimates for fourth-quarter earnings per share, Citigroup leads the Global Systemically Important Banks (GSIBs) category with an expected 21% year-over-year increase; within the custodian bank group, Bank of New York Mellon is projected to grow by 15%; and among large regional banks, Citizens Financial Group expects a substantial 30% rise. Over the past six months, the most significant upward revisions to EPS consensus estimates were for Morgan Stanley (expected +16% YoY) among GSIBs, Bank of New York Mellon (expected +7.1% YoY) among custodian banks, and U.S. Bancorp among large regional banks. While the fourth-quarter results themselves are significant, Morgan Stanley analyst Betsy Graseck noted in a report to clients, "Upcoming guidance and further confirmation of a broadening capital markets recovery will be more important." M&A deal value skyrocketed 65% year-over-year in the fourth quarter of 2025, but the impact of deal completions is expected to carry over into next year. Last month, Goldman Sachs CFO Denis Coleman stated that the bank's sponsor-led deal volume grew 40% in 2025. Overall, the Morgan Stanley model forecasts a 9% year-over-year increase in investment banking fees for the fourth quarter, slightly below the consensus expectation of 11% growth. Specifically, M&A advisory fees are projected to rise 15%, exceeding the consensus estimate of 14%. Morgan Stanley analysts indicated that markets business revenue for the quarter is expected to grow 8% year-over-year, surpassing the consensus forecast of 7%. Equity trading revenue is anticipated to climb 12%, outpacing the projected 5% increase for Fixed Income, Currencies, and Commodities (FICC) trading revenue. Morgan Stanley analysts' EPS estimates are most significantly above consensus for PNC Financial Services Group, Northern Trust, and State Street, while their forecast for Citigroup is the most substantially below the analyst average. Among banks potentially issuing positive guidance, they are most optimistic about Bank of New York Mellon (due to potential for upward revision in Return on Tangible Common Equity) and State Street (due to a clearer roadmap for achieving sustainable operating leverage). One point to note regarding Bank of America's fourth-quarter results: the bank announced on Tuesday a change in the accounting treatment for its tax-related investments in affordable housing and qualified wind and solar renewable energy equity. This aims to better reflect the economic substance of the equity investments in its financial statements. The bank stated that the change has a minimal impact on annualized net income. Following the accounting change, as of September 30, 2025, Bank of America's retained earnings were $1.7 billion lower than previously reported, reflecting the cumulative impact of timing differences in expense recognition under the new method. Looking ahead to 2026, Evercore ISI analyst Glenn Schorr pointed out in a client report that trading, wealth management, and investment banking will drive growth, while the pace of net interest income growth is expected to moderate against a backdrop of softening interest rates. He believes Bank of America, JPMorgan Chase, and Bank of New York Mellon have the best net interest income growth prospects for the coming year. In trading businesses, Morgan Stanley and JPMorgan Chase are his top picks; in investment banking, Morgan Stanley stands out, but Citigroup offers the most attractive valuation and will benefit from the broader industry recovery. Within the M&A business sector, he favors Morgan Stanley, Goldman Sachs, and JPMorgan Chase.
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