Big bank earnings set up Wall Street revenue test after SpaceX IPO

The biggest U.S. banks are heading into second-quarter earnings with investors expecting a jump in Wall Street revenue. For everyday investors, the reports could show whether bank stocks still have support from trading, dealmaking and lending after two years of beating the broader market, according to Wells Fargo analyst Mike Mayo.

JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs are scheduled to report results early Tuesday, with Morgan Stanley following on Wednesday. The focus will be on two profit engines: investment banking, which includes fees from helping companies sell stock or debt, and trading, where banks make money serving clients in stocks, bonds, currencies and other markets.

KBW analyst Chris McGratty expects investment banking revenue for the group to rise 26% from a year earlier and trading revenue to climb 14%. Mayo told CNBC that banks are benefiting from growth on both Wall Street and Main Street, meaning market activity and traditional lending are improving at the same time.

SpaceX lifts the fee pool

The quarter included SpaceX’s initial public offering, or IPO, the process of selling shares to public investors for the first time. CNBC reported that the SpaceX deal generated hundreds of millions of dollars in fees for banks, led by Goldman Sachs and Morgan Stanley.

Those banks also earned fees from helping SpaceX raise debt after the IPO, according to CNBC. They may also compete to manage money for employees and investors who became newly wealthy from the offering.

Jay Ritter, professor emeritus of finance at the University of Florida’s Warrington College of Business, told CNBC that Goldman and Morgan Stanley likely benefited from “soft dollars” tied to the SpaceX deal. Soft dollars are payments or trading commissions that hedge funds and some active mutual funds direct to investment banks in exchange for access to shares in popular IPOs, Ritter said.

Ritter said those allocations can be more valuable to investment banks than the standard advisory fee on an IPO. In a deal with more demand than available shares, the banks running the offering decide how much stock different investors receive.

Volatility helps trading desks

Trading revenue is also expected to get a boost from active markets. McGratty told CNBC that equity trading benefited as stock markets rose during the quarter, while fixed income trading, which covers bonds, rates, currencies and related products, picked up as the Iran conflict moved oil prices, interest rates and currencies.

Market volatility, or sharp price movement, can help trading desks when clients trade more and banks manage risk well. McGratty said banks have recently done a better job capturing revenue from volatile periods than in some earlier cycles.

Lending may be improving too

Mayo told CNBC that commercial lending may be turning after a weak stretch. Commercial lending means loans to businesses for projects such as factories, equipment or expansion.

He said banks are trying to win business from private credit firms, which are nonbank lenders, while artificial intelligence-related spending is spreading into broader corporate investment. Mayo said that trend could help regional banks such as Fifth Third because business lending makes up a larger share of their revenue than it does at more diversified banks like JPMorgan.

Consumer credit also looks stable, according to CNBC, helped by low unemployment that has kept borrowers current on mortgages, auto loans and credit cards.

Risks remain. McGratty pointed to deposit competition, where banks may need to pay higher rates to attract or keep customer cash. Higher deposit costs can squeeze lending margins, especially if interest rates stay steady or rise. Private credit also remains a watch item after JPMorgan CEO Jamie Dimon warned last year, following the collapse of subprime auto lender Tricolor Holdings, that one failure can signal more problems elsewhere.

McGratty told CNBC that investors already expect a strong quarter. The harder test is whether the mix of deal activity, trading revenue and loan growth can continue into 2027.

This story draws on original reporting from CNBC.