In recent weeks global markets have been in turmoil. Major stock indices have seen their greatest losses since the COVID pandemic, and tech stock CEOs have had billions wiped off their net worth. But even in chaos, some players always find a way to win.
In this case, those players are the big banks. In Q1 2025 big banks reported bumper profits, beating Wall Street analyst estimates. This has come from thriving trading departments within the banks. J.P. Morgan set a record for equities trading revenue during the first quarter, Morgan Stanley saw equity trading revenues soar 45%, while Goldman Sachs saw an increase of 27% for the metric. This theme is consistent across the street, with Bank of America, Citi Group, BNP Paribas, and Wells Fargo posting increased gains from trading.
In today’s blog, we’ll look at how banks have found success through trading in a period of such high market uncertainty, why not all banking divisions are thriving, and the future outlook for banks this year. Let’s dive in.
Turning Turmoil Into Trading Triumph: How Big Banks Benefitted from Volatility
While many investors panicked during the recent market frenzy, the big banks capitalised on a surge in trading activity. Their success wasn’t accidental, it was powered by deep advantages in information, talent, and technology, allowing them to manage client flow efficiently and profit from heightened market volatility.
Firstly, we need to understand how banks make money from trading. The Volcker Rule bans banks from proprietary trading, which is investing the banks money into the market with the sole purpose of generating a profit. Therefore, banks trading profits come in the form of market making fees. Market making is when banks provide liquidity to the market by constantly offering to buy and sell securities, such as stocks or bonds. They quote both a buying price and a selling price, and the difference between the two, known as the spread, is where they make their money. When clients (such as asset managers, hedge funds, pension funds, etc) want to trade, the bank steps in as the counterparty, earning small profits on each transaction.
Volatility means opportunity. As markets swung wildly, institutional investors traded more frequently, increasing trading volumes. This meant more transactions for market makers, increasing revenue generated from spreads. The result, banks smashing Wall Street analyst estimates out of the park.
The biggest banks on the street, J.P. Morgan, Goldman Sachs, Morgan Stanley, and others, really thrive in this environment. Their superior access to market information, cutting-edge trading technology, and elite trading teams allow them to manage this surge in client activity more effectively than ever, efficiently pricing quotes to maximise their spreads.
The Other Side of the Coin: Investment Banking Revenue Slows
While trading desks have racked up profits, not every part of the banking world has been booming. Investment banking revenue, including deal advisory, IPO underwriting, and capital raising, has stalled so far this year. In Q1 2025 many banks reported (or are expected to report) little or even negative growth in investment banking fees compared to the previous quarter. This slowdown reflects broader market conditions, with January of this year presenting the lowest volume of new deal activity in over a decade.
Market uncertainty is once again the cause of the shift in banking revenues, creating an environment where companies are increasingly reluctant to commit to major deals.
Banks initially thought the Trump administration would revive the M&A and deal advisory space. However, Trump’s tariffs and protectionist policies have had the opposite effect. The escalating trade war and regulatory uncertainty have made companies nervous about cross-border deals and supply chains, in turn reducing companies’ confidence in new deal commitments.
In addition to this, inflation in the U.S. has proved stubbornly high so far this year, leading to concerns that interest rates will be higher for longer. Higher interest rates make takeover deals funded with debt more expensive, therefore such M&A deals have slowed significantly in 2025.
Volatile equity markets reduce the number of IPOs and secondary offerings, as company boards look for stable market conditions to complete these processes. This year’s market conditions have therefore slowed capital market activity, dampening another important revenue stream for investment banks.
Finally, the April 2025 CEO Confidence Survey by Chief Executive shows CEO confidence at a multi-year low of 4.6, down from 5.0 in March. When company CEOs aren’t confident in market conditions, they aren’t going to commit to large risky deals, another factor dragging down investment banking revenue this year.
The contrast between different bank divisions this quarter demonstrates how different businesses thrive under different conditions, with investment banking and bank trading performance seemingly having an inverse relationship.
Saul Martinez, a banking analyst at HSBC, put this simply in a Financial Times article, saying, “Market volatility is good for sales and trading. It’s bad for investment banking.”
What Comes Next for Big Banks?
Given the ongoing uncertainty in global markets, forecasting bank performance for the rest of 2025 remains challenging. However, the same key factors that shaped the first quarter, market volatility, trade tensions, and corporate confidence, are likely to dictate the months ahead.
If markets remain extremely volatile, it is likely that trading divisions within banks will continue to outperform, as market makers complete more client transactions and profit from larger spreads.
On the other hand, if the deal-making environment fails to stabilise, with escalating global trade wars, high interest rates, and low CEO confidence, the outlook for investment banking will stay subdued.
The first quarter of 2025 has highlighted how differently global banks perform under turbulent market conditions. Trading divisions thrived while investment banking teams slowed despite the expected positive impact of the Trump administration.
These trends demonstrate the importance of adaptability within the banking industry, showing that success doesn’t hinge purely on size, but on the ability to navigate shifting market landscapes. In a world where volatility seems set to continue, banks that can find success in all conditions will find themselves at the front of the pack.
Although it is difficult to predict the future outlook for banks this year, one thing is for certain. The big banks will always find a way to make money, and plenty of it.
