Optimistic headlines about the nation’s largest banks dominate the news, reflecting strong Q4 2024 earnings from institutions like JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. While there is much to celebrate in the Q4 2024 earnings reports of the nation’s big six banks, the sky isn’t entirely cloudless. “While no one has a crystal ball, there are a number of catalysts that we believe will continue to drive activity,” said David Solomon, CEO of Goldman Sachs. “There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election.”
Despite strong overall performance and signs of a promising year ahead, commercial real estate (CRE) remains a delicate balancing act, with office sector challenges continuing to dominate headlines.
Investment Banking and Trading Fuel Profits
Major banks started the earnings season on a high note, delivering strong fourth-quarter results fueled by robust economic growth, easing interest rates, and a surge of post-election investor confidence. Goldman Sachs reported a profit of $4.1 billion, its highest quarterly figure since Q3 2021, fueled by significant gains in dealmaking, debt sales, and trading. Morgan Stanley’s institutional securities group also experienced a surge, with net profit climbing to $3.7 billion, supported by a 49% revenue increase to $7.3 billion.
Bank of America reported a profit of $6.67 billion, more than doubling its results from the previous year. CFO Alastair Borthwick noted, “Consumers are still spending, and our business clients are profitable and increasingly optimistic. We’re entering 2025 with good momentum.” Wells Fargo posted a profit of $5.1 billion, representing a 47% increase due to higher trading revenues and investment banking fees.
JPMorgan Chase recorded a profit of $14 billion, cementing its leadership position with record-setting annual earnings. Citigroup also rebounded strongly, reporting a profit of $2.9 billion, reversing losses from the prior year as dealmaking and trading activities gained traction.
These results demonstrate the resilience of major U.S. banks, leveraging strong capital markets and economic momentum to drive profitability into 2025.
CRE Lending: A Cautious Outlook
In CRE lending, the Q4 results reflect a tempered outlook. JPMorgan Chase’s CRE loan activity remained flat as new originations were offset by paydowns, while Wells Fargo highlighted persistent weakness in office fundamentals. Wells Fargo’s net loan charge-offs for commercial real estate increased by $80 million from Q3, driven primarily by the office portfolio. CRE revenue in the Wells’ portfolio declined by 1% year-over-year, driven by lower loan balances. However, this was partially offset by increased capital markets revenue, supported by higher volumes in commercial mortgage-backed securities, real estate loan syndications, and multifamily capital, reflecting improved market sentiment.
On a positive note, Wells reported a 5% decline in nonperforming assets, largely due to a $390 million reduction in CRE office nonaccrual loans. The bank’s revenue from multifamily and capital markets activity showed some improvement, reflecting better sentiment in these segments of CRE. However, as CEO Charlie Scharf cautioned, “We still expect commercial real estate office losses to be lumpy as we continue to actively work with our clients.”
CRE Loan Exposure Report Highlights Regional Bank Risks
A report from Florida Atlantic University highlights the heightened exposure of U.S. banks to CRE loans, revealing that 59 of the 155 largest banks have CRE loan exposures exceeding 300% of their equity. The U.S. Banks’ Exposure to Risk from Commercial Real Estate screener, which tracks quarterly data from the Federal Financial Institutions Examination Council Central Data Repository, calculates each bank’s CRE exposure as a percentage of total equity. While the big six banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—are better positioned to manage these risks due to diversified portfolios and lower CRE concentration, the report underscores the heightened vulnerability of smaller regional banks to regulatory scrutiny and economic volatility.
Voices from the Field
As discussed on the recent CRE Weekly Digest podcast, lenders’ optimism for 2025 is evident. Transaction volumes and financing activity are expected to grow, with large banks expanding balance sheets and continued growth of CMBS issuance. However, some lenders remain cautious about the impact of macroeconomic uncertainties, including government spending policies and regulatory changes.
As CRE professionals assess these dynamics, opportunities exist in sectors like multifamily and retail, which are showing resilience despite broader challenges. The office sector, meanwhile, remains a space to watch closely as banks work through existing portfolios and new originations continue at a measured pace.
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