When Goldman Sachs (GS) CEO David Solomon received an invitation to watch Donald Trump triumphantly ring the opening bell at the New York Stock Exchange earlier this month, there was no doubt he would attend.
The next president of the United States would not only come to Wall Street, but would give Solomon, Citigroup (C) CEO Jane Fraser and a host of other corporate executives the opportunity to meet and socialize with a portion of the candidates for his cabinet on the trading floor.
Minutes before Trump’s bell rang, the crowd erupted in cheers: “USA, USA.”
Solomon and other big bank bosses certainly have a lot to be happy about as 2024 draws to a close.
President-elect Donald Trump rings the opening bell on the trading floor of the New York Stock Exchange on December 12. (Photo by Spencer Platt/Getty Images) ·Spencer Platt via Getty Images
Deals and trade are increasing, interest rates are considerably lower than a year ago and the prospect of looser banking rules seems possible with a new Republican administration about to take over the White House. Bonuses are also expected to increase once checks are cut in the new year.
No bank is better positioned to take advantage of this shift than Goldman, which relies heavily on Wall Street-focused investment banking, trading and wealth management businesses. Its shares have risen since Trump’s election and are up 50% in the past 12 months.
But it is not the only bank that has risen. Since the election, shares of JPMorgan Chase (JPM) and Bank of America (BAC), Citigroup, Wells Fargo (WFC) and Morgan Stanley (MS) have risen between 5% and 12% through Friday.
David Solomon, CEO of Goldman Sachs, speaks during the Reuters NEXT conference on December 10. REUTERS/Mike Segar ·REUTERS / Reuters
“A lot of bankers are like dancing in the street,” JPMorgan Chase CEO Jamie Dimon said days after Trump won the election.
JPMorgan, the country’s largest bank, is among those that have had a great year. Analysts expect the bank to break another record for highest profits in U.S. banking history. Investment banking revenue is expected to increase 45% in the fourth quarter.
The hope is that this current rally could be just the beginning of a bull run that banks haven’t seen in more than a generation.
Some predict that 2025 will be a repeat of 1995, when bank stocks soared after the Federal Reserve’s rate cuts, a soft landing engineered by then-central bank Chairman Alan Greenspan, and a deregulation stance taken by the then-President Bill Clinton.
A federal law signed by Clinton in 1994 removed restrictions that prevented banks from opening branches across state lines, setting the stage for a period of consolidation that would eventually give rise to coast-to-coast empires amassed by JPMorgan Chase, Wells Fargo, Bank of America and Citigroup.
In 1995, an index tracking the banking sector ended up rising more than 40%, outperforming the S&P 500 (GSCP). That superior performance would be maintained for two more years.
The current year rivals 1995 in investor exuberance. The KBW Banking Index (^BKX) is up 32% so far, outperforming major stock indices.
For the party to move forward, “electoral optimism will have to translate into bank revenues,” Jason Goldberg, an analyst at Barclays, told Yahoo Finance.
“The market is pricing in a new recovery, so it is certainly something to take into account,” he added.
One hopeful sign is that investment banking has ramped up this year, ending a two-year drought.
Investment banking revenue in 2024 is on track to be the third highest in the last decade, according to Dealogic data as of December 17.
Activity levels remain slightly below the 10-year historical average, which includes a standout year in 2021, but Solomon predicts this will change next year with more deals in the pipeline and an easier M&A approval process in Washington.
“In 2025, we will certainly be at 10-year averages. We could be ahead of 10-year averages,” Solomon said at a Reuters conference this month.
The big prize for the banks would be for the incoming Republican administration to attack big bank supervisors as well as their rules and regulations.
What banks are hoping above all is that a new administration will relax a new set of controversial capital rules proposed by top banking regulators that would require lenders to set aside larger reserves for future losses.
Bank CEOs testify during a U.S. Senate Banking Committee oversight hearing in 2023. REUTERS/Evelyn Hockstein ·REUTERS / Reuters
The requirements are based on an international set of capital requirements known as Basel III imposed in the decade after the 2008 financial crisis.
Banks have been fighting this US proposal for the past year in an aggressive public campaign and even dropping hints about suing regulators if they don’t get their way.
They won a big victory in September when some regulators said they would relax those requirements.
Bankers hope the new administration will review the rules again. If the stance of the previous Trump administration is any guide, the new round of capital increases could range from the current 9% to “no increase,” Barclays’ Goldberg added.
There are still many uncertainties that could send bank stocks tumbling. Some economists worry that Trump’s broader economic agenda of raising tariffs, cutting taxes and deporting undocumented immigrants could increase inflationary pressures and keep interest rates higher.
That, in turn, could make life more difficult for banks’ borrowers and increase financing costs for lenders.
But bank investors like odds. Just like bankers.
Bank of America CEO Brian Moynihan told Yahoo Finance last month at the Invest conference that he is confident in the U.S. economy under Trump’s leadership and hopes the administration will “hit the ground running.”
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrencies, and other financial areas.
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