Wall Street’s biggest banks are entering a new phase of recovery as investment banking activity rebounds from multi-year lows, driven by a surge in mergers, acquisitions and IPOs. Lending and trading remain robust, but capital markets are emerging as the next key profit engine.
BNN Bloomberg spoke with Mike Clare, senior vice-president and senior portfolio manager at Brompton Funds, who says Bank of America and Morgan Stanley are leading the turnaround as deal pipelines build, regulations ease and banks deploy capital more aggressively to fuel growth.
Key Takeaways
- Bank of America and Morgan Stanley both posted strong earnings, with results well above analyst forecasts.
- Investment banking revenue rose more than 40 per cent year over year at both firms, signalling a rebound in M&A and IPO activity.
- Positive operating leverage is returning as revenue growth outpaces expenses, supported by early AI-driven efficiencies.
- Banks are expected to reinvest excess capital and resume share buybacks as regulatory pressure eases.
- Strong trading performance and healthy loan growth round out a broad-based recovery across U.S. financials.
Read the full transcript below:
ANDREW: We got yet more earnings from the giant U.S. lenders. Bank of America and Morgan Stanley both topped expectations. Let’s get more now from a guy who spends a lot of time drilling into U.S. bank numbers — Mike Clare, senior vice-president and senior portfolio manager at Brompton Funds. Great to see you. Thanks very much for joining us.
MIKE: Great to see you. Thanks for having me.
ANDREW: Start off with Bank of America. What stood out for you there, Mike?
MIKE: I think Bank of America had a really strong quarter. They’re among the best-positioned banks for the current environment, and all of their business lines are firing on all cylinders. Earnings per share were about 12 per cent above expectations, growing roughly 30 per cent year over year.
All of the business lines contributed. The core banking division saw net interest income rise nine per cent year over year and four per cent from last quarter — a substantial part of their business and something we’re bullish on going forward.
Their capital markets and trading businesses also performed well. Trading has been strong across the industry for several quarters, and Bank of America delivered another solid beat, particularly in equities.
The investment banking business, which we’ve been talking about for a while, is finally showing momentum. We’ve started to see deal activity accelerate in the third quarter. Investment banking revenue beat expectations by 25 per cent and grew about 40 per cent year over year, with strength across advisory, mergers and acquisitions, and both equity and debt capital markets. It’s really starting to turn up across the major banks.
ANDREW: Are they already seeing cost reductions from artificial intelligence?
MIKE: We’re not really seeing cost reductions yet. What we are starting to see is positive operating leverage return — meaning revenue growth is outpacing expense growth. Banks are slowly adopting AI, and over time that will help manage expenses. But instead of outright cost cuts, we’ll likely see banks keep headcounts steady and use technology to maintain efficiency as revenue rises. That drives positive operating leverage and greater efficiency in the business.
ANDREW: I can’t believe the scale of this bank — almost 70 million consumer and small-business clients. That’s a big slice of the U.S. population.
MIKE: Yes, roughly 70 million clients and 3,700 branches. Despite that, they’ve grown new chequing accounts for 27 consecutive quarters. They’ve done a great job investing in the business and gaining market share. We expect that to continue, particularly as capital frees up.
These banks have spent 15 years building capital under stricter regulations, and now that those requirements are easing, we expect more share buybacks and investment in loan growth to support the economy. The U.S. economy is firing on all cylinders, and it’s a great time for banks to put excess capital to work.
ANDREW: Looking at a five-year chart for Bank of America, it’s been a respectable performer — about a 133 per cent total return including dividends, almost exactly in line with the S&P Financials Index.
MIKE: It’s been a bit of a laggard. Bank of America had a tougher time through the financial crisis, so it’s taken longer to recover. But it’s now well positioned to benefit from the current environment, and we expect it to perform well going forward.
ANDREW: JPMorgan’s up about 240 per cent over that same five-year stretch — the darling of the group.
MIKE: Right.
ANDREW: Then there’s Morgan Stanley, another strong performer — total return north of 250 per cent. What stood out for you in their results?
MIKE: What stood out is that they delivered an excellent quarter again. Expectations were high, but they still managed a big beat — earnings per share were about 30 per cent above consensus and up nearly 50 per cent year over year.
Trading, especially in equities, remained very strong. And, like Bank of America, the investment banking division was a standout — beating expectations by about 25 per cent and growing more than 40 per cent year over year. Management has been optimistic about the capital markets cycle, and it’s showing up in the numbers.
Equity markets have been strong, and there’s a backlog of companies ready to go public. IPO issuance picked up significantly in the third quarter, and that’s reflected in Morgan Stanley’s results.
ANDREW: Before we let you go, which U.S. banks are the most internationally exposed?
MIKE: I don’t have exact numbers on hand, but generally retail and consumer banking are domestic businesses. The global exposure comes through the investment banking and capital markets divisions. So Morgan Stanley and Goldman Sachs have the most international exposure, while banks like JPMorgan and Bank of America are more domestically focused.
ANDREW: Thanks very much, Mike. Great hearing from you.
MIKE: Thank you.
ANDREW: That’s Mike Clare, senior vice-president and senior portfolio manager at Brompton Funds.
This BNN Bloomberg summary and transcript of the Oct. 15, 2025 interview with Mike Clare are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
