s may be entering a rare phase where growth is no longer being driven by Wall Street alone. As major lenders prepare to report second-quarter earnings, analysts are watching a revival in business borrowing that could add another profit engine to an already strong banking sector.
As reported by CNBC, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs are scheduled to report results early Tuesday, while Morgan Stanley will release its numbers Wednesday.
Banks are also competing with private credit firms for corporate borrowers. At the same time, the artificial intelligence-led spending boom is beginning to spread into other parts of the economy, potentially creating more demand for traditional bank loans.
Business loan demand is making a comeback
After years of subdued commercial lending, companies appear increasingly willing to borrow and invest despite economic and geopolitical uncertainty.
Veteran banking analyst Mike Mayo of Wells Fargo told CNBC that businesses are beginning to accept uncertainty as the “new normal” and are moving ahead with factories, plants and other investments.
“Demand is back as companies treat the uncertainty as the new normal and build that new factory, invest in plants and get on with business,” Mayo told CNBC.
The change could be particularly important for regional banks such as Fifth Third, where commercial lending accounts for a larger portion of the business than at diversified banking giants such as JPMorgan.
Consumers are still holding up
The consumer side of banking has also remained relatively healthy. Low unemployment has helped borrowers continue making payments on mortgages, auto loans and credit cards, keeping credit losses under control.
This resilience matters because banks are now seeing strength across both their traditional lending operations and Wall Street businesses.
Mayo described the current environment as a “sweet spot” for the financial sector, with banking’s two major profit engines growing simultaneously. “There’s not much more you can ask for,” Mayo told CNBC.
Wall Street desks are heading for another big quarter
While lending is recovering, trading and investment banking are expected to deliver some of the biggest numbers of the quarter.
Investment banking revenue among the major banks could rise 26% from a year earlier, while trading revenue may increase 14%, according to KBW analyst Chris McGratty, CNBC reported.
Equities trading benefited as stock markets climbed during the quarter. Fixed-income desks also saw increased activity as the Iran conflict triggered sharp movements in oil prices, interest rates and currencies.
“Banks are doing a good job these days of capturing the upside of volatility, whereas in previous cycles, they’ve been caught offsides,” McGratty told CNBC.
Expectations are now high that revenue from equities and fixed-income trading could approach or even surpass records set earlier this year.
SpaceX IPO opened several revenue doors for banks
The investment banking boom was also boosted by last month’s massive SpaceX IPO. Goldman Sachs and Morgan Stanley led the offering, generating fees from the IPO and debt fundraising linked to the newly public company. Banks could also benefit from managing the wealth of employees and investors who became millionaires and billionaires following the listing.
There is another, less visible source of revenue
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 so-called “soft dollars” linked to the SpaceX offering.
“The big money maker for investment banks in IPOs is not the bankers’ fee, but the ability to allocate shares to hedge funds and some active mutual funds that pay soft dollars,” Ritter told CNBC.
Soft dollars essentially involve hedge funds paying investment banks for access to shares in heavily oversubscribed IPOs.
The strength extends beyond a single listing. Mayo pointed to a surge in mergers and broader trading activity across equities, fixed income and global markets.
“You saw the largest IPO in history, a pace of mergers that’s on track to be a record year, and a broadening out of trading to include equity and fixed income across myriad geographies,” Mayo told CNBC.
The risks have not completely disappeared
Private credit remains one concern, although fears have eased because no major new failures have emerged. JPMorgan CEO Jamie Dimon had previously warned investors after the collapse of subprime auto lender Tricolor Holdings that “when you see one cockroach, there are probably more.”
Deposit competition is another risk. Some banks have been forced to offer higher rates to attract and retain savers, McGratty told CNBC. If interest rates remain steady or rise, higher deposit costs could put pressure on bank profit margins.
Strong earnings may not be enough for investors
Financial stocks have outperformed the broader market for two consecutive years, helped by strong banking activity and the Trump administration’s push to ease financial regulations. That success has also raised expectations.
Investors already expect a strong second quarter. The bigger question is whether booming trading, recovering business loans and resilient consumer credit can continue supporting banks into 2027.
“We know the quarter’s going to be strong, so I think the question that you ask yourself is around sustainability, right?” McGratty told CNBC. “Is it all sustainable?”
