Wall Street Bank Earnings Split as Rate Surge Cools Trading Boom

A boom meets a rate shock

The largest US banks went into the second half of 2026 after one of their most profitable six-month stretches in at least a decade. Then interest rates rose sharply.12 Third-quarter results, released in mid-October, gave the first clear look at how that change is landing. The answer is uneven. Lending profits are still growing, equities trading is still very strong, and dealmaking and bond trading are losing momentum just as investors have become much less patient.

The pressure came from monetary policy and from the bond market together. On September 16, the Federal Reserve raised the federal funds target range by a quarter point to 3.75%–4%.19 It was the central bank's first hike since 2023, and markets are pricing in another quarter-point move before year-end.8 Longer-term yields have moved even more dramatically. The 10-year Treasury yield rose above 5.2% in early October, near levels not seen since around 2002.10

The scorecard: one blowout, two misses

Across the six biggest US banks, the results split into winners and laggards. Goldman Sachs beat consensus profit estimates by the widest margin, about 32%. Citigroup beat by roughly 7%, Morgan Stanley by about 3% and Wells Fargo by about 1%. Bank of America and JPMorgan Chase fell short.18

Goldman's quarter stood out. Net earnings rose 29% to $5.29 billion, or $17.01 a share, and net revenue climbed 23% to $18.68 billion.1419 Equities trading revenue jumped 72% to $6.44 billion, and investment banking fees rose 21% to $3.22 billion.17 Advisory revenue of $1.65 billion was the firm's highest ever, although CNBC noted that Goldman's deal pipeline shrank.11 Coverage did not agree on how big the beat was, because published consensus figures varied: LSEG had $13.02 a share and other trackers ranged from about $12.86 to $13.50.11141820 One preview said Goldman's estimate range was unusually wide going into the report.15 On any of those benchmarks, the result was still a large beat.

JPMorgan had the opposite problem. Net income rose 6% to $15.3 billion, or $5.57 a share, below the roughly $5.90 analysts expected.1116 Reuters, citing LSEG data, described it as the bank's first profit miss since late 2023.9 Before this quarter, JPMorgan had beaten earnings-per-share estimates in 16 of the previous 20 quarters.11 Fixed-income trading was the main drag. Analysts had expected a 7% gain and got a 4% decline instead, even as equities trading revenue rose 49%.8 The bank also booked $658 million in net securities losses. Excluding them, EPS would have been $5.75, which still missed.11

Citigroup did something the other big trading banks didn't: it grew fixed-income revenue. FICC revenue rose 4% to $4.4 billion, mainly on financing revenue from spread products, and profit was up about 40% from a year earlier.817 Bank of America missed estimates because of weakness in capital markets and a $1.2 billion charge.9 That charge has been linked to a fine over alleged sanctions and anti-money-laundering violations.20 BofA's FICC revenue fell 17% to $2.6 billion.19

Lending is the steady part

The quarter showed that higher rates are still mostly helping the traditional lending business, even while they hurt the trading and advisory side. JPMorgan's net interest income (NII), the gap between what a bank earns on loans and pays on deposits, rose 13% to $27.1 billion. Average loans grew 10% and average deposits 8%.19 Bank of America's NII rose 8% to $16.4 billion, and its net interest yield improved by 15 basis points.19 Reuters described consumer banking as a steady engine, and said executives cited resilient spending and continued loan demand.9

Credit quality looked mostly benign, with some caveats. JPMorgan's provision for credit losses fell to $2.74 billion from $3.40 billion a year earlier. Part of that drop reflects a $2.2 billion provision in the year-ago quarter tied to the Apple Card portfolio transaction.12 Goldman's credit-loss provisions in its banking and markets segment rose sharply from a year earlier. Citi said credit-card profits fell 8%, partly because it set aside more for loan losses.12

The bigger risk on the lending side is funding costs, not loan losses. Before the results, Citizens Financial president Brendan Coughlin said loans are easier to find than deposits, and that this is squeezing the cost of raising money.1 Higher rates raise deposit and wholesale funding costs and reduce the value of bank bond portfolios, which can offset the early benefit to lending income.2 JPMorgan's securities losses this quarter are an early sign of that.

Why the stocks were already falling

The selloff began before any results came out. The five big investment-bank-heavy lenders lost about $270 billion in combined market value from their summer highs, while the S&P 500 was still up roughly 14% for the year.1 The Invesco KBW Bank ETF fell 12% from its August peak. In the month before October 9, Bank of America dropped 16% and Goldman 15%.7 Truist analyst Brian Foran told clients that financials had just had their worst month against the S&P 500 since 1990.10

Investor sentiment fell quickly. A Truist Securities survey found only 35% of institutional investors expect bank stocks to beat the broader market, down from 68% in July and 82% in December.2 UBS analyst Erika Najarian blamed much of the underperformance on the sharp rise in long-term rates.1 Macquarie strategists added a warning: many of the most prominent financial blowups of the past 50 years came soon after sudden moves in long-term bond yields.1

The earnings did little to change that mood. Reuters reported that the four banks that beat estimates saw their shares fall or barely move, because investors thought the beats were smaller than in earlier quarters.9 In my reading, the market is now pricing the cycle more than the quarter. Investors are discounting the risk that the first half was a peak, not the numbers just reported.

Dealmaking: delayed, not dead

This is where coverage differed most. Reuters said dealmaking stalled after the summer, with rising yields, a volatile AI trade and geopolitical worries pushing back a long-awaited recovery in mergers and IPOs.9 Oura postponed plans to go public, and Nvidia-backed Firmus Grid shelved its listing after investors objected to its valuation. Global M&A announcements slowed sharply in the third quarter.2

Bankers argue the opportunity is still there. Citi's global co-head of M&A said the rate environment is not helping, but M&A is still a frequent boardroom topic.1 JPMorgan's CFO described deals as delayed, and executives across the industry stressed that postponed IPOs have not been canceled.119 Bankers also expect financing the AI buildout to produce years of debt, equity and advisory work.2 Goldman's incentive fees rose more than sevenfold to $587 million, partly from giving clients early private access to SpaceX before its large IPO. That shows how much the big listings matter when they do happen.8

The executives' message was confident but cautious. Jamie Dimon said a move from 5% to 6% rates would hurt more than the move from 4% to 5%, because borrowers would have to refinance at higher costs and credit spreads could widen. He said he was not forecasting that outcome, only urging people to be prepared.8 Wells Fargo's Charlie Scharf said AI investment, strong employment and wage growth still outweigh the risks from higher rates, oil prices and inflation.8 JPMorgan also cut buybacks to $664 million from more than $6 billion the previous quarter. Dimon pointed to about $30 billion in excess capital that the bank sees putting to work at attractive returns.17

Regulators are easing capital rules

That excess capital comes partly from Washington. Regulators appointed under President Trump have put out a series of rules and proposals since 2025 that, taken together, would lower the capital banks must hold.23 The enhanced supplementary leverage ratio rule, finalized in November 2025, cut the holding-company requirement from 5% to 3% plus half of each global systemically important bank's (G-SIB's) Method 1 surcharge.22 CreditSights estimated the change frees roughly $29.6 billion of Tier 1 capital across those banks.25

In March 2026, the agencies replaced the much tougher 2023 Basel III endgame plan with a new proposal. The Fed said the package as a whole would cut common equity tier 1 requirements by 4.8% for the largest banks.28 The Basel piece alone would raise those requirements by 1.4%, but the proposed G-SIB surcharge changes and stress-test changes more than offset that. Governor Michael Barr voted against it and called the proposals "unnecessary and unwise."28 The comment period closed on June 18, and no final rule had been issued as of September.24

The timing is awkward. Capital requirements are being eased just as long-term yields jump, bond portfolios take losses and strategists recall that past rate shocks have come before financial accidents.111 The third quarter does not show a sector in trouble. RBC's Gerard Cassidy called the selloff a buying opportunity, saying fundamentals remain strong.7 Still, the results suggest the first-half boom relied heavily on volatile trading. If yields keep rising, lending income may have to carry more of the load, and deposit costs could limit how much it can. As one analyst put it, the selloff likely reverses only when the 10-year yield stops climbing.10