Bank Earnings: JPMorgan, BofA Miss as Dealmaking Cools

A split verdict from Wall Street's biggest lenders

The six largest U.S. banks released third-quarter results this week, and the numbers did not add up to one clear story. JPMorgan Chase and Bank of America missed profit expectations. Goldman Sachs, Morgan Stanley, Citigroup and Wells Fargo beat them.24 The quarter's main theme was a slowdown in dealmaking. Rising bond yields, a volatile AI trade, geopolitical stress and delayed IPOs made companies hesitant to pursue mergers and listings.4 The trading business sent mixed signals. Equity desks did very well, while fixed-income desks lagged.25

Investors were not impressed by the beats. Several of the banks that topped forecasts saw their shares fall or barely move, apparently because the margins over expectations were smaller than in earlier quarters.4 One market recap described all six major lenders selling off after reporting, with concerns about inflation, interest rates and the economy outweighing the results.16

Our view is that this was a good quarter for bank earnings and a poor one for bank stocks. Lending income is at record levels and consumer credit is holding up. But the businesses that drove a record first half, capital markets and bond trading, slowed down. Higher rates are now creating risks that partly cancel out the extra income they bring in.

JPMorgan's rare stumble

JPMorgan's report set the tone on Tuesday. The bank earned $15.31 billion, or $5.57 per share. Excluding $658 million in net securities losses, earnings were $5.75 per share, still below the LSEG consensus of $5.90.1 It had beaten per-share estimates in 16 of the previous 20 quarters.1 Reuters, citing LSEG data, called it the bank's first profit miss since the fourth quarter of 2023.4

The weak spot was fixed income. Trading revenue there came in at $5.4 billion, roughly $550 million below the StreetAccount estimate. Expenses were also about $90 million higher than expected.21 Overall revenue grew 8%, well below the 27% jump in the second quarter.1 Equities were the bright spot: revenue rose almost 50% to about $5 billion, led by prime services and derivatives.5

Published consensus figures differ. CNBC used $5.90 per share from LSEG, Mint reported $5.85, and an Associated Press figure carried by other outlets put it at $5.93.217 Every version shows a miss, so the gap does not change the conclusion.

Management played down the shortfall. Chief executive Jamie Dimon called it another strong quarter, though he acknowledged that trading and investment banking activity "did moderate somewhat."1 CFO Jeremy Barnum said the deal pipeline was still "very, very strong" and described transactions as "delayed rather than canceled."121 JPMorgan also raised its 2026 net interest income forecast to $106.2 billion from $105.5 billion and lifted its expense guidance to $108.6 billion.21

Goldman and Morgan Stanley ride the equities boom

Goldman Sachs had the strongest quarter. Net revenue was $18.68 billion, up 23%, and earnings were $17.01 per share, far above forecasts in the $13 range.321 Equities revenue rose 72% to $6.44 billion, beating estimates by roughly $1.35 billion on strength in derivatives and prime financing to hedge funds. Fixed income was flat at $3.47 billion and fell short of expectations, with mortgages, credit and rates products all weaker.

Business mix explains why two leading dealmakers had such different quarters. Equities made up about 34% of Goldman's revenue, compared with about 10% at JPMorgan and 2% at Wells Fargo. With equity desks booming and bond desks stalling, the firm most exposed to stock trading did best.8

Morgan Stanley showed a similar pattern. It reported net income of $4.9 billion on $20.3 billion in revenue. Equities revenue rose 41% to $5.8 billion.23 Bloomberg's coverage noted that the stock-trading result beat the $4.9 billion forecast and that the wealth unit brought in a record amount of new client money.

Dealmaking stalls, but slowly

The headline about stalled deals needs some context. Year over year, investment banking fees rose at most firms. JPMorgan's were up 14% and Goldman's up 21%. Most of the decline showed up against the second quarter. JPMorgan was down 8% sequentially, Goldman 5%, Wells Fargo 3% to 5% depending on the measure, and Citi showed the steepest quarter-over-quarter drop at 13%.1114

The wider market looks weaker. Dealogic data showed global investment banking revenue down 6.6% from a year earlier, to $27.2 billion, as completed mergers and debt issuance declined.1 Bank of America had the worst result, with fees down 11% and fixed-income trading down 17%.16 Its CEO, Brian Moynihan, had warned in September that fees would fall by more than 10%.1

Goldman's report reflected both sides of the picture. Advisory revenue hit a record $1.65 billion, yet the firm's fee backlog fell from the second quarter.1 CEO David Solomon called the backlog "very robust" and pointed to large deals such as Nvidia's $13 billion purchase of Hugging Face. He declined to say whether capital markets activity had peaked.1

Executives from several banks said the slowdown sharpened in late September as the bond market fell and stocks swung.10 Wells Fargo CFO Mike Santomassimo tied that weakness directly to the jump in the 10-year Treasury yield.10 The repeated "delayed, not canceled" message is credible for now. It does depend on markets calming down, though, and the shelved Oura IPO shows how quickly a planned listing can be pulled.1

Rates help lending income and hurt the stocks

Interest rates shaped the quarter more than anything else. The Federal Reserve raised its benchmark rate by a quarter point on September 16, to a range of 3.75% to 4.00%. It was the first increase in about three years, and it came only about two weeks before the quarter ended.12 Bond markets sold off during the period on renewed inflation fears and higher oil prices. The S&P 500 Banks Index fell 5.4% in the quarter while the broader S&P 500 gained about 2.3%.1

Lending, the traditional core of banking, did well. JPMorgan, Citigroup and Wells Fargo together earned $56.5 billion in net interest income, a record for the fifth straight quarter.17 JPMorgan's rose about 13% and Citi's about 14%, and Citi raised its full-year outlook for the measure.1513

Higher rates also mean higher funding costs, and that is where the trouble lies. Wells Fargo's net interest margin narrowed to 2.43% from 2.61% a year earlier as the bank paid more for deposits.1718 Its net interest income missed forecasts because of lower yields on floating-rate assets, higher deposit costs and fewer non-interest-bearing deposits.14 In trading units, higher borrowing costs also reduce net interest income.14

One analysis of Bank of America's deposit data explains why the hike may help banks less than expected. Over the previous rate-cutting cycle, wealth clients received roughly 60% of the Fed's moves, while ordinary consumer depositors received only about 13%. The bank's own estimates suggest a 100-basis-point rise adds less to income than a cut of the same size takes away.12 One Zacks strategist put it more directly: high rates and the possibility of further Fed hikes are clearly hurting trading and deal activity.10

Consumers hold up, with early signs of strain

Credit quality offered some reassurance. Wells Fargo CEO Charlie Scharf said customers are spending more, delinquencies are low and balances have grown. He named higher rates, oil prices and inflation as risks, but said AI investment and strong employment still outweigh them.13 Santomassimo said the bank had seen no change in how borrowers or depositors behave.14

The provision numbers point to some caution, however. Wells Fargo's credit-loss provision rose to $1.03 billion, from $681 million a year earlier. Citi said its card profits declined because of higher rewards costs and larger provisions.19 One analyst called this "late-cycle normalization" rather than a broad deterioration in credit, and that is a reasonable description.19

Bank of America and Citi

Bank of America's profit fell 17% to $6.93 billion, or $0.91 per share, against expectations of $1.10. The result included a $1.2 billion regulatory penalty. Excluding it, earnings would have been $1.08 per share.3 That figure still misses the forecast, so the fine accounts for only part of the weak quarter.8

Citigroup reported its best third-quarter revenue in a decade. Net income rose about 40% to $5.2 billion, though the comparison is flattered by a Banamex-related charge in last year's quarter.5 Even so, the stock fell 5.6%, which commentators attributed to profit-taking after a strong run.1617

What it means for bank stocks

The sector entered earnings season already behind the broader market, and this week's reports gave investors little reason to change that view.1 Overall, banks are making more money from lending even as the capital markets business that drove this year's profits slows down. Investors are discounting the beats and penalizing the misses. They want evidence that the deal backlogs bankers describe will turn into completed deals. If the bond market steadies, the delayed deals could make the fourth quarter strong. If yields keep rising, bank shares will likely stay under pressure despite strong lending income.