Investment banking drives US banks’ profits (Photo: Freepik, f11photo)
The major US banks Morgan Stanley and Bank of America are reporting brilliant business figures and are making high profits thanks to the revival of investment banking. Other financial giants such as Goldman Sachs, JPMorgan Chase and Blackrock are also successful. Investors can benefit from this development by investing in funds and ETFs focused on the financial sector.
US banks shine: investment banking drives profits
Morgan Stanley and the Bank of America (BofA) shine with impressive increases in profits. BofA more than doubled its net profit in the fourth quarter to $6.7 billion, while Morgan Stanley recorded a jump from $1.5 billion to $3.7 billion. The main reason: the revived business with takeovers and mergers.
“All revenue sources have grown, and we have seen above-average growth in deposits and loans,” BofA CEO Brian Moynihan said optimistically. Net interest income also rose to $14.4 billion thanks to interest rate differences. A similar picture emerged at Morgan Stanley. Income in investment banking climbed by 25 percent to $1.64 billion and asset management also increased significantly.
Banks benefit from rising interest rates – but for how long?
A key driver of the upswing in the financial sector has been the interest rate increases by central banks in recent years. These gave the banks higher interest margins, which, according to UBS, caused return on equity to rise from 8 to 14 percent. However, recent interest rate cuts could slow this trend. Nevertheless, the experts remain optimistic: UBS analysts expect bank stocks to achieve a total return of 25 percent by 2025 – a significant lead over the overall market, which is estimated at 5 percent.
Another factor that is favoring the upswing of the financial sector is advancing digitalization. Companies can use innovative technologies to optimize their added value and develop new business models.
The best ETFs and funds for the financial sector
Conclusion: The financial sector remains exciting
The banks’ recent successes show that the financial sector offers solid potential despite the economic challenges. Funds such as Algebris Financial Equity or specialized ETFs are ideal instruments for participating in this development.
However, investors should not underestimate the risks. Interest rate cuts and possible regulatory changes could slow momentum. Anyone who invests should rely on diversification and use the financial sector as an admixture in a more broadly diversified portfolio.
Disclaimer:
Not investment advice. No call to buy or sell securities.