The earnings season for major Wall Street firms kicks off this week: Investment banking business may continue to perform poorly for 14 consecutive quarters, with trading revenue becoming a lifeline again?

The Q2 earnings season kicks off this week, and Wall Street's major banks will face a more severe performance test.

The market expects that the five major U.S. banks—JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley—will see a nearly 10% decline in investment banking revenue in the second quarter to $7.5 billion, marking the 14th consecutive quarter that Wall Street's business proportion falls below 25%, setting the longest slump record since 2014.

Trading business may once again become a savior, with expected trading revenue growth of nearly 10% year-on-year in the second quarter, reaching $31 billion, which is more than four times the investment banking revenue.

JPMorgan Chase and Citigroup will announce their earnings on July 15 local time, while Bank of America, Goldman Sachs, and Morgan Stanley will release theirs the following day. Including Wells Fargo, the overall net income of the six major U.S. banks is expected to decline by about 13% compared to the same period last year, with JPMorgan Chase experiencing the largest drop, with analysts predicting a 30% decrease compared to the same period last year.

This performance highlights the continued slump in mergers and acquisitions and equity capital markets since the bubble burst during the pandemic era in 2021. It also underscores the strong performance of trading business after experiencing a downturn in the 2010s, when low interest rates and insufficient volatility suppressed revenue growth.

Trading business benefits from market volatility, investment banking recovery prospects unclear

Banks profit by facilitating and financing transactions, benefiting when activity levels are high and prices are volatile. Oppenheimer & Co research analyst Chris Kotowski stated:

This is a normal environment, while the low volatility environment of the 2010s was the abnormal part.

Over the past three years, financial markets have dealt with rising interest rates, conflicts in Ukraine and the Middle East, and protectionist policies following Trump's return to the White House. These trends have suppressed the ability of corporate leaders and investment firms to engage in transactions.

Although bankers remain optimistic about potential project reserves, Kotowski is cautious about the short-term outlook for investment banking:

I think the investment banking business is basically set for 2025. There may be a strong quarter for stock issuance in the fall, which would help. Mergers and acquisitions depend more on transactions announced in the second half of the year.

HSBC banking analyst Saul Martinez pointed out that the first half of the quarter performed poorly for obvious reasons, but there is clearly more optimism about the outlook. However, the political and economic stability that investors hope for may alleviate the market volatility that drives up bank trading revenues