5th January 2025 – (Zurich) The past few years have been a white-knuckle ride for the titans of global banking. Conditions went from famine to feast and back again as crisis after crisis roiled markets. However, in 2025, the turbulence may finally subside, allowing the industry’s behemoths to settle in for a stretch of calm cruising.
After being battered by pandemic shutdowns, soaring inflation, geopolitical shocks, and wild swings in interest rates, the world’s biggest banks look poised to enjoy a rare period of stable, broad-based growth across their diversified business lines. A brightening economic outlook, the prospect of steadier monetary policy, and the return of big merger deals all signal 2025 could be the best year for banking giants since before the 2008 financial crisis.
“The stars are aligning for the universal banking model,” said David Hendler, founder of Centerview Capital. “These firms have been aggressively streamlining over the past decade, and now they are set up to capitalise on every avenue of growth as the landscape clears.”
The lucrative lending and deal-making engines that power firms like JPMorgan Chase, Citigroup, HSBC and BNP Paribas have been stuck in alternate cycles of boom and bust in recent years. In 2022, a resurgence in global trade sparked a bonanza in transaction banking, fixed-income trading, and risk management services. Russia’s invasion of Ukraine that year set off a frenzy of hedging that buoyed banks’ currency, commodities and rates desks.
However, hostile market conditions quickly chilled investment banking and underwriting activity. IPOs dried up and corporations hoarded cash rather than issuing new debt or equity. Adverse geopolitical shocks and central bank interest rate hikes delivered a punishing one-two punch to Wall Street’s dealmaking businesses.
The hangover lingered into 2023, when the Federal Reserve’s most aggressive tightening campaign since the 1980s crushed mortgage lending and sapped demand for commercial loans. However, banks finally started enjoying the benefits of higher interest rates through improved net interest margins. Trading operations thrived again amid the volatility.
Since the Fed began slowing its pace of rate hikes last year, the stage has been set for more balanced growth in 2025. Moderating inflation has reduced pressure on central banks to maintain an aggressive posture. At the same time, leading recession indicators remain subdued, suggesting the economy is regaining its footing.
“It’s like clearing the flight path after a prolonged storm,” said Michael Leibrock, head of global strategy at Decade Advisors. “Steadier conditions are allowing banks to accelerate on all engines rather than having to favor certain cylinders over others depending on where the turbulence is coming from.”
After years of mixed results, analysts expect revenue growth to broaden across virtually every major banking vertical in 2025. Even fixed income trading operations, longtime underperformers, could get a boost from shifting yield curves renewing demand for bond products.
The resurgence is widely expected to be led by the advisory businesses at titans like Goldman Sachs and Morgan Stanley. Following years of stagnation, dealmaking activity is roaring back as private equity firms rush to capitalize on built-up “dry powder” reserves. Global M&A volume topped $5 trillion in 2023 and could reach new records in 2025 if regulatory headwinds clear.
“Private equity finally cracked under pressure from limited partners to start putting all their cash to work,” said Navin Nadhri, managing director at Trillium Growth Partners. “These funds simply can’t sit on the sidelines anymore while corporations are trading at bargain valuations. And banks are set to feast on the fees from a tidal wave of buyouts, exits and restructurings.”
Major investment banks are also optimistic that 2025 will usher in a revival of the institutional IPO market. While speculative tech offerings may remain subdued, a red-hot housing market and the ongoing life sciences boom could encourage a flurry of new issuances. Rental housing titan Airbnb is seen as the headliner among a slate of multi-billion dollar listings planned for the year ahead.
On the retail side, mortgage lending could gain steam again as the Fed appears to be nearing the end of its rate hiking cycle. And big banks’ wealth management units should get a shot in the arm from recovering asset valuations and low double-digit market returns in 2025 after modest gains last year.
The overall macro environment is providing a helpful tailwind. While still elevated, inflation pressures appear to be receding at a steady clip thanks to cooling energy and commodity markets. Persistent labor shortages likely mean wage growth will remain firm, buoying consumer spending.
Perhaps the biggest factor underpinning the banking outlook is an apparent easing of late-stage credit cycle fears. After peaking at 2.3% in mid-2023 amid a wave of cryptocurrency and commercial real estate loan defaults, the overall non-performing loan ratio for U.S. banks has dropped below 1.6%. Improving fundamentals in the corporate sector and stabilizing consumer balance sheets are curbing delinquency risks.
“The credit storm appears to have passed, barring any major economic relapse,” said Josh Gelinas, banking analyst at CFR Research. “With cleaner balance sheets and a more durable profit stream, banks should finally have the capacity to start redeploying capital after several years of battening down the hatches.”
The rebounding health of the industry is prompting banks to aggressively restart shareholder reward programs. Most majors restored dividends to pre-pandemic levels over the past year and have announced substantial new buyback authorizations. Citigroup and Morgan Stanley recently approved $18 billion and $20 billion repurchase plans, respectively.
This buyback binge has been a key driver behind the sizzling gains for bank stocks in 2024. The KBW Bank Index has surged 35% year-to-date, trouncing the 25% rise for the S&P 500. Top performers include JPMorgan Chase (+42%), Bank of America (+39%) and Wells Fargo (+45%).
While the generous capital return programs have helped boost valuations, most bank stocks still trade at reasonable multiples given their rosy profit trajectory. The typical large-cap bank shares fetches around 11x forward earnings and 1.3x book value.
Some analysts see potential for further multiple expansion as growth resumes on a more balanced keel across business lines. Investment banks like Goldman Sachs could see earnings multiples rebound towards historical norms above 13x as trading operations improve. Long-suffering regional lenders could enjoy valuation upside as rate hikes are fully absorbed into higher net interest margins.
“We finally have a return to a more normal operating environment with multiple durable revenue drivers in play,” said Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Securities. “That improved earnings stability could argue for higher typical bank valuations overall.”
Meanwhile, Swiss bank Julius Baer faced a significant setback in 2024 when financial authorities in Monaco reprimanded the bank’s local division for failing to maintain proper internal controls over £135 million in client transactions. The regulator stated that Julius Baer bankers did not have appropriate measures for scrutinising a series of 10 large transactions by an unnamed client, including one for £30 million. This public sanction dealt a blow to Julius Baer’s reputation as it aims to strengthen its anti-money laundering systems. Looking ahead to 2025, Julius Baer will experience modest growth of around 3-5% as it works to regain client trust under its new CEO Stefan Bollinger. While the bank is still recovering from the Benko affair fallout, Bollinger’s leadership and Julius Baer’s efforts to tighten compliance controls should help stabilise operations. However, significant growth may be constrained in the near-term as the bank prioritises restoring its integrity over-aggressive expansion.
To be sure, the 2025 outlook for banks is not without risks and potential speedbumps. Any stumbles in the global economic recovery or an ill-timed policy misstep by central banks could quickly upset the delicate balance driving the rebound. Escalating geopolitical tensions or financial shockwaves from a surprise conflict could revive extreme volatility.
There are also secular challenges brewing like disruptive fintech competitors and intensifying regulatory oversight. But for the first time in years, banks finally appear to have sufficiently strong tailwinds to maintain altitude even when facing periodic gusts of turbulence.
“Sure, there will always be threats and factors that can knock these firms off course,” said Michael Platt, CEO of BlueCrest Capital. “But what we’re seeing is the universal model really hitting its stride again. And that makes the global banking giants as well-positioned as they’ve been in over a decade to ride out the bumps and just stay on cruise control.”
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