As the third-quarter earnings season kicked off last week, the market received a scare when negative news emerged about two smaller regional lenders.
Auto parts bank First Brands has filed for Chapter 11 bankruptcy protection with about $6.1 billion in debt on its books, while Tricolor — a high-risk auto lender and dealer — has filed for Chapter 7 bankruptcy citing alleged systemic fraud.
In response, JPMorgan Chase New York Stock Exchange: JPM CEO Jamie Dimon issued a warning about private credit risks looming in the economy, noting that “when you see one cockroach, there are likely to be more.”
But the words used there are “private credit”. When it came time for the major publicly traded banks to report their results, their earnings proved that the likes of First Brands and Tricolor were not a contagion that would impact the banking industry on a large scale.
Major banks showed great financial results in the third quarter
Although the financials sector has been the fifth-best performer among all 11 S&P 500 sectors this year, its 9.23% year-to-date gain trails the index. Some of this can be attributed to the bad year experienced by the insurance industry, whose stocks fall under the umbrella of the financial sector.
Large-cap insurance companies like Progressive New York Stock Exchange: BGRMarsh & McLennan Companies New York Stock Exchange: MMCAnd UnitedHealth Group New York Stock Exchange: United Nations– With losses since the beginning of the year amounting to approximately 8%, 11%, and 28%, respectively – they helped decline the sector as a whole.
However, despite the relatively weak performance of financial institutions compared to the market, there was one notable exception: the big banks, which proved they were up for business as usual when they reported third-quarter earnings last week.
JPMorgan Chase crushes expectations. Quarterly revenue of $46.4 billion showed growth of approximately 9% year-over-year (YOY), while earnings per share (EPS) of $5.07 grew 16% year-over-year, beating analyst estimates of $4.83 by more than 10%. On an annual basis, the bank’s profits are expected to grow by 7.29% next year.
The story was similar for Bank of America New York Stock Exchange: PACMorgan Stanley New York Stock Exchange: MSAnd Wells Fargo New York Stock Exchange: WFCwhich all beat the top and bottom line of Wall Street analysts’ expectations. Meanwhile, Citigroup New York Stock Exchange: c Goldman Sachs missed EPS expectations by just 3 cents New York Stock Exchange: A It missed revenue expectations despite its quarterly figure of $11.33 billion representing a 19.5% increase year over year.
So it’s no surprise that not only have these stocks outperformed the S&P 500 this year, but almost all of them have beaten the market with the following gains since the beginning of the year:
- Pac: 16.32%
- WFC: 20.76
- JPM: 23.79%
- MS: 27.61%
- P: 32.00%
- A: 40.48%
Naturally, the Q3 is in the rearview mirror. But isolating some of the key themes that emerged from the big banks’ reports offers hints about what investors can expect in the fourth quarter and beyond.
Key takeaways from major banks’ earnings calls
One big topic among all those banks mentioned above has been the increase in investment banking fees as well as trading revenues. Much of this is due to significant increases in M&A activity and increased IPO activity, both of which have created favorable market conditions for major banks.
Global M&A activity in the third quarter reached its highest level in a decade with $371 billion in completed deals. This figure exceeded the total value of all merger and acquisition activity in the first half of the year. North America led the way with $246 billion, more than double the amount recorded in the same quarter the previous year.
Meanwhile, IPO filings saw their highest total since Q4 2021 on the back of several recent successful launches, suggesting that investment banks have been backing companies with stronger fundamentals and thus higher prospects for profitability.
For example, JPMorgan Chase saw a 9% year-over-year increase in trading revenue, which reached a record high of $9 billion. Investment banking fee revenue rose 16% year-on-year, with fixed income and equity trading posting gains of 21% and 33%, respectively.
Bank of America’s investment banking revenue rose a staggering 43% year over year to more than $2 billion, while Wells Fargo reported a quarterly record $840 million in investment banking fees, up 25% year over year.
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While earnings season is just getting started, the big banks have come out swinging. Judging by its performance last quarter, it defies talk of historical valuations, everything blowing up, and persistent uncertainty from the Trump administration’s tariffs.
For investors looking for broad exposure to financials during the remaining months of 2025, the Select Financial Sector SPDR Fund NYSEARCA:XLF It reflects, as much as possible, the financial sector in the S&P 500, which could see a rebound over the fourth quarter and into next year with a more balanced performance than stocks representing underperforming industries — such as insurance.
Institutional ownership of XLF is approximately 73%, and its dividend yield is 1.38%, or 73 cents per quarter.
Meanwhile, the big banks remain a safe bet Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo All of them currently carry a 12-month average price target which implies potential upside.
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