Bank stocks kick off the US earnings season: increased mergers and acquisitions boost investment banking revenue, Citigroup (C.US) and New York TrustCo Bank Corp NY (BK.US) profit expectations lead the way.

The bank financial report season will kick off on Tuesday, with JPMorgan Chase & Co (JPM.US) and New York TrustCo Bank Corp NY (BK.US) leading the way, followed by Citigroup Inc. (C.US), Wells Fargo & Company (WFC.US), and Bank of America Corp (BAC.US) announcing their results on Wednesday, Goldman Sachs Group, Inc. (GS.US) and Morgan Stanley (MS.US) are scheduled to release their reports on Thursday. As trading activity accelerates, investment banking business income is expected to drive fourth-quarter performance. Dealogic data shows a 15% year-on-year increase in global investment banking revenue to $103 billion for the full year 2025. Mergers and acquisitions transaction volume is expected to grow by 42% to $5.1 trillion. In terms of consensus expectations for fourth-quarter earnings per share, Citigroup is expected to lead among global systematically important banks with a 21% year-on-year increase; in the trust bank category, New York TrustCo Bank Corp NY is expected to grow by 15%; and in the large regional bank category, Citizens Financial Group is expected to see a 30% increase. Over the past six months, the largest upward revisions in earnings per share consensus expectations have been for: Morgan Stanley among global systematically important banks (expected to grow by 16% year-on-year), New York TrustCo Bank Corp NY among trust banks (expected to grow by 7.1% year-on-year), and U.S. Bancorp among large regional banks. While fourth-quarter performance is important, Morgan Stanley analyst Becky Glasek noted in a report to clients that "upcoming earnings guidance and further confirmation of the extent of the capital markets recovery will be more important". Mergers and acquisitions transaction volume surged by 65% year-on-year in the fourth quarter of 2025, but the impact of completed transactions is expected to continue into next year. Last month, Goldman Sachs Group, Inc. Chief Financial Officer Dennis Coleman stated that the bank saw a 40% growth in sponsor-led deals in 2025. Overall, Morgan Stanley's model predicts a 9% year-on-year increase in investment banking expenses in the fourth quarter, slightly lower than the market's general expectation of an 11% increase. M&A advisory fees are expected to increase by 15% year-on-year, higher than the market's general expectation of 14%. Morgan Stanley analysts predict that market business income in the fourth quarter will increase by 8% year-on-year, higher than the market's general expectation of 7%. Stock trading income is expected to grow by 12%, exceeding the expected growth of 5% for fixed income, currency, and commodities trading. Morgan Stanley analysts have the most significantly higher earnings per share expectations for PNC Financial Services Group, Inc., Northern Trust Corporation, and State Street Corporation, while their expectations for Citigroup are significantly lower than the average analyst expectation. Among banks that may release positive earnings guidance, they are most optimistic about New York TrustCo Bank Corp NY (due to potential upside in tangible common equity returns) and State Street Corporation (because their roadmap for sustainable operational leverage is clearer). One thing to note about Bank of America Corp's fourth-quarter performance: the bank announced on Tuesday that it will change its accounting treatment methods for tax-related affordable housing, qualified wind energy, and CECEP Solar Energy renewable energy equity investments to better reflect the economic substance of the equity investments in its financial statements. The bank stated that this change will have minimal impact on annualized net income. After the accounting change, as of September 30, 2025, Bank of America Corp's retained earnings have decreased by $1.7 billion from the originally reported amount, reflecting the cumulative impact of timing differences in expense recognition under the new accounting method. Looking ahead to 2026, Evercore ISI analyst Glenn Schorle pointed out in a client report that trading, wealth management, and investment banking business will drive growth, while the pace of growth in net interest income will slow down in a softer interest rate environment. He believes that the banks with the best prospects for net interest income growth in the coming year are Bank of America Corp, JPMorgan Chase & Co, and New York TrustCo Bank Corp NY. In trading business, Morgan Stanley and JPMorgan Chase are his top picks; in investment banking business, Morgan Stanley has an outstanding performance, but Citigroup has the most attractive valuation and will benefit from the overall industry recovery. In the mergers and acquisitions business sector, he is bullish on Morgan Stanley, Goldman Sachs Group, Inc., and JPMorgan Chase.