Banks warn of a bubble because they announce abundant profits

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Goldman Sachs, JPMorgan Chase and Citigroup reported bumper profits across their Wall Street divisions, even as they warned that investor exuberance risked pushing the recent rally in financial markets into bubble territory.

The three banks reported quarterly profits on Tuesday that comfortably beat analysts’ estimates, with a resumption of deal making boosting investment banking revenues and continued volatility in financial markets boosting trading income.

JPMorgan’s net income rose 12 percent from the same quarter a year earlier to $14.3 billion, while net profits at Goldman – a bank whose business is largely focused toward investment banking and trading – rose 37 percent to $4.1 billion. Citi’s net income rose 18 percent to $3.5 billion.

Investment banking and trading revenue rose at least 12 percent at all three banks in a sign that Wall Street’s long-awaited recovery under the Trump administration is finally starting to materialize.

Bankers had expected the administration’s liberal stance on regulatory restrictions and low interest rates to pave the way for a flood of deals after a hiatus that lasted more than two years. But that did not materialize in the first months of the year, as companies struggled to understand the impact of the administration’s trade wars on growth and profit expectations.

The banks indicated Tuesday that they now expect gains in their Wall Street businesses to continue for the rest of this year and into 2026.

“It was our busiest summer in a long time in terms of announced M&A activity,” said Jeremy Barnum, JPMorgan’s chief financial officer. Goldman said the backlog of potential deals ended the quarter at a three-year high.

“It is clear from our boardroom conversations that… many of our clients have been able to adapt to the current situation,” Goldman Sachs CEO David Solomon told analysts.

However, the CEOs of the three banks sounded the alarm over investor enthusiasm, which they said risked pushing the recent rally in financial markets into bubble territory.

“We have a lot of assets that look like they are entering bubble territory,” said JPMorgan’s Jamie Dimon. “That doesn’t mean they don’t have 20 percent left. It’s just another reason to worry.”

Jane Fraser, CEO of Citigroup, recognized that the global economy had proven to be more resilient and resilient than many had expected, with “the American economic engine… still humming in reality.”

But she added: “However, there are pockets of volatile valuation in the market, so I hope discipline remains.”

Bank executives have noticed some signs of stress among American borrowers, though they insist they are generally in good health.

JPMorgan, the largest U.S. bank by deposits and assets, reported an uptick in pressure on its loan portfolio, with the proportion of loans classified as non-recoverable rising to the highest level since before the pandemic.

“It’s very easy to imagine a world in which the job market declines from here,” Barnum said. “I can’t say we’re beating the table with that view, but we’re just noting…that there are risks and the fact that things are great now doesn’t mean they’ll be great forever.”

JPMorgan also revealed a $170 million loss as a result of the failure of subprime auto lender Tricolor Holdings. Damon called the loss “not our finest moment.”