- Big banks posted year-over-year gains in Q4 investment-banking revenue, but results often missed lofty expectations and weighed on stocks.
- Citigroup’s investment-banking fees rose 35% as advisory jumped 84%, but a roughly $1.2 billion Russia-related charge and higher expenses hurt reported profit.
- Bank of America’s investment-banking fees grew about 1%, with stronger trading and net interest income driving a 12% rise in net income.
- Investors are prioritizing 2026 deal pipelines, guidance, and cost control as equity underwriting lags and timing/regulatory delays push activity into next year.
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The recent earnings reports from major U.S. banks paint a picture of cautious optimism mixed with investor disappointment. While dealmaking activity and capital markets revenue have surged year-over-year, especially in advisory and M&A, many banks missed market expectations for investment banking fees in Q4 2025, resulting in share price declines despite decent overall earnings. Citigroup and Bank of America, in particular, highlight this tension between improving performance and investor reaction.
Citigroup: Citi reported a 35% increase in investment banking fees, largely due to an 84% jump in advisory revenue that offset a 16% decline in equity underwriting. Total revenue rose to roughly $19.87 billion, though net income fell to $2.47 billion from $2.9 billion a year prior, largely because of a ~$1.2 billion pre-tax loss tied to the sale of its Russian unit. Adjusted EPS of $1.81 beat expectations, but the headline net income drop and margins pressures (expenses up ~6%) damped investor sentiment.
Bank of America: Fee income from investment banking rose only ~1% to $1.7 billion, signaling modest growth amid strong expectations. However, BofA’s strength came from trading revenue (+10%) and net interest income, which together lifted net income 12% YoY to $7.6 billion. Despite these gains, its IB fee growth lagged the broader sector.
Broader industry context and investor psychology: Despite the frothy IPO market in 2025 (e.g., 202 IPOs raising $44 billion—strongest since 2021) and very strong M&A volumes, many banks saw investment banking gains concentrated in certain areas (advisory, debt underwriting) while equity underwriting lagged. Moreover, structural issues such as the timing of deals, delayed IPO approvals (notably from regulatory bottlenecks), weakened equity underwriting, and rising expenses (especially in transformation/restructuring) chipped away at margin expectations. Investors, having priced in significant IB fee growth, reacted sharply when realized returns fell short.
Strategic implications: For banks, sustaining investor confidence will require pushing strong forward guidance—especially for 2026—showing where IB fees will come from, whether from IPOs, M&A, or sector-specific growth (e.g. AI, energy, tech). Cost control remains central, as does transparent disclosure of non-recurring items (like Russia in Citi’s case). The pipeline of delayed deals and IPOs into 2026 offers upside, but timing risks (e.g. regulatory delays, macro headwinds) are real. Competitive differentiation—scale, advisory strength, balance sheet flexibility—will matter.
Open questions: How effectively can banks accelerate their pending IPO pipelines without margin pressure? To what degree will interest rate cuts (projected but uncertain) compress net interest income and how will banks manage deposit cost competition? How will expense growth (tech, AI, staffing) balance with revenue gains, especially in IB? What will be the impact of regulatory shifts (capital requirements, disclosure rules, geopolitical risks)?
Supporting Notes
- Citigroup’s investment banking fees rose 35% YoY to $1.29 billion; advisory revenues up 84%, offsetting a 16% drop in equity underwriting.
- Citigroup’s total revenues Q4 2025 were ~$19.87 billion, net income dropped to $2.47 billion from $2.9 billion the prior year due to a ~$1.2 billion charge on sale of Russian unit; adjusted EPS was $1.81 beating estimates.
- Bank of America’s investment banking fees rose ~1% YoY to $1.7 billion; equity underwriting fell ~18%, debt underwriting underperformed forecasts.
- BofA’s trading revenue rose 10%, net interest income up ~9-10%; net income $7.6 billion for Q4 2025, up 12% YoY.
- Despite the IPO market being strong in 2025 (e.g. 202 IPOs raising $44 billion per Renaissance Capital), bank stocks sank as investment banking fees failed to fully satisfy elevated expectations.
- The industry expects a loaded deal pipeline in early 2026—delayed IPOs, regulatory timing issues, and year-end deal slippage contribute to this backlog.