Global Investment Banks: J.P. Morgan sees strong US investment-bank earnings and market-share momentum, but flags late-cycle leverage expansion as a growing medium-term risk.

Overview

This industry report examines the rapid expansion of global investment-bank balance sheets, especially at US banks. J.P. Morgan finds that strong trading, prime-brokerage and financing demand, together with lower US leverage requirements, are supporting earnings and shareholder distributions, but views the expansion as a late-cycle development that could create risks if it persists.

Core views

J.P. Morgan reiterates its Overweight view on banks operating in what it calls a “perfect environment,” but frames the current phase as late cycle. The six US banks in its analysis increased leverage exposure by $2.3tn, or 13%, over one year—growth multiples of GDP—while four European banks added $0.4tn, or 6%. The report does not call for a credit-driven crisis and acknowledges it may be early, with limited investor focus on over-leverage, but argues that the duration of this re-leveraging, potentially another one to two years, will help determine the severity of the next credit cycle. US banks retain leading investment-banking market share, initially through superior trading technology and execution models and increasingly through balance-sheet-intensive financing. The top five firms accounted for 64% of the estimated 2025 FICC revenue wallet and 69% of the Equities wallet. US firms outperformed European peers in 1H26, helped by higher exposure to AI-related Equities activity and a larger prime-brokerage footprint. European banks are more balance-sheet constrained, partly because of dollar-funding disadvantages; however, J.P. Morgan argues that the valuation gap is already overly discounted, citing UBS at 10.2x 2028E P/E and Deutsche Bank at 7.3x versus an average 14x for covered US investment banks. The balance-sheet acceleration is concentrated in the US. Aggregate assets of the six US banks rose $1.8tn, or 11% year on year, in 2Q26, compared with 5% for selected European banks; leverage exposure rose 13% and RWAs 8%. More than 90% of year-on-year US balance-sheet growth came from CIB divisions: CIB assets for the analyzed banks excluding Morgan Stanley increased $1.3tn, or 18%, while DBK and HSBC CIB assets grew 8%. Lower leverage requirements were an important catalyst. Goldman Sachs and Morgan Stanley adopted modified eSLR standards from 1 January 2026, reducing their requirements from 5% to 3.75% and 3.5%, respectively; their reported SLRs had fallen to 4.3% and 4.9% by June 2026, from 5.2% and 5.4% at year-end 2025. Trading assets, prime brokerage and lending explain much of the CIB expansion. At Goldman Sachs, trading assets accounted for 46% of the year-on-year increase in CIB assets; Morgan Stanley's trading assets rose 30%, although its segment reclassification makes the comparison not like-for-like. Customer receivables and margin loans also grew strongly, reflecting prime activity. Citi said prime balances were nearly 60% higher in 2Q26. CIB loans grew an average 18% year on year at US banks in 1H26, versus 6% in Europe; Citi Markets, Goldman Sachs, Wells Fargo and Morgan Stanley recorded loan growth of 20–29%. Goldman Sachs' growth was led by other collateralized lending, including financing to investment funds, asset warehousing and secured wealth-management and corporate-client lending. Financing revenues have translated the larger balance sheets into earnings rather than margin dilution so far. Equity-financing revenue grew 75% year on year for Morgan Stanley and 57% for Goldman Sachs in 1H26, following 2025 growth of 33% and 31%, respectively. Fixed-income financing remained solid: Goldman Sachs grew 8% in 1H26 after 13% in 2025 and 33% in 2024, while Deutsche Bank reported 3% growth in euros, or 10% in US dollars, in 1H26. Citi reported that financing represented 76% of 2025 spread revenues versus 57% in 2021, and disclosed a 9% CAGR in overall financing revenue for 2022–25. Healthy client demand and pricing leverage in equity financing have supported margins. The report finds no broad evidence of margin pressure despite rapid balance-sheet growth. In 2Q, US group revenue margins improved 36bp year on year on assets, 27bp on leverage exposure and 98bp on RWAs. Group pre-tax-profit margins improved 40bp on assets, 33bp on leverage exposure and 95bp on RWAs. CIB revenue and pre-tax margins generally improved as well. J.P. Morgan attributes this to high activity in markets, investment banking and prime brokerage, along with benign asset quality. It notes that prime brokerage is more leverage-exposure intensive than RWA intensive, helping explain stronger balance-sheet growth than RWA growth. Capital requirements have eased while distributions have risen. US banks' minimum CET1 requirements were about 120bp lower year on year on average, or around 100bp excluding Goldman Sachs, and reported CET1 ratios were roughly 75bp lower. The six US banks bought back $57bn of stock in 1H26, up 30% year on year. J.P. Morgan expects distributions to continue as Basel 3 final-endgame effects appear more favorable than previously expected, although it notes that buybacks offer limited EPS accretion at prevailing US-bank valuations. Risk indicators and the composition of capital usage reinforce the report's caution. US-bank RWA growth of 8% year on year was driven by a 9% increase in credit RWAs, supporting the view that financing and other balance-sheet-heavy businesses are expanding. VaR increased for most firms, though J.P. Morgan cautions that methodology differences and heightened 1Q26 volatility affect comparisons; Goldman Sachs' higher VaR, for example, partly reflected its historical-simulation approach. The report stresses that disclosure is limited, particularly on technology financing, correlated or one-way risks, and European divisional balance sheets. It warns that a correction in themes such as AI, normalization in volatility, or commodity-price declines could expose risk in a faster-growing and increasingly leveraged balance sheet.

Analysis framework

J.P. Morgan compares US and European investment-bank revenue performance, market shares, balance-sheet growth, CIB assets, trading assets, lending, financing revenues, capital ratios, buybacks, VaR and RWA composition. It then links regulatory changes, client activity, AI-related Equities demand and prime brokerage to earnings and leverage growth, while using historical banking-cycle comparisons to frame the longer-term credit-risk warning.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Balance-sheet-to-financing-revenue transmission analysis

  The report traces how lower leverage constraints and stronger client activity expand trading, prime-brokerage and lending balances, which then support financing revenues and margins.

• Other

  Balance-sheet, leverage, RWA and VaR comparative analysis

  The report compares asset, leverage-exposure, RWA and VaR trends across US and European banks to assess the pace and risk composition of investment-bank expansion.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Bank of America (BAC)

  Analyzed US investment bank benefiting from stronger markets activity and trading-related balance-sheet growth.

  Strengths

  Global Markets balance-sheet growth was driven by trading-related assets.

  Comparison

  Part of the stronger US cohort relative to most European peers.

  Risks

  Late-cycle balance-sheet and leverage expansion highlighted for US banks.

• Citigroup Inc. (C)

  Analyzed US investment bank with strong Markets and prime-brokerage activity.

  Strengths

  Prime balances were nearly 60% higher; Markets assets rose 17% year on year in 2Q26.

  Comparison

  US CIB loan and balance-sheet growth exceeded European-bank averages.

  Risks

  Financing-led growth contributes to the report's balance-sheet-risk concern.

• Goldman Sachs (GS)

  Analyzed US investment bank and major beneficiary of trading and equity-financing growth.

  Strengths

  Trading assets drove 46% of CIB asset growth; equity-financing revenue rose 57% year on year in 1H26.

  Comparison

  Its SLR requirement fell to 3.75% from 5%.

  Risks

  Faster trading, collateralized-lending and leverage growth; VaR comparisons are sensitive to methodology.

• Morgan Stanley (MS)

  Analyzed US investment bank with strong equity financing and prime-brokerage exposure.

  Strengths

  Equity-financing revenue rose 75% year on year in 1H26; trading assets rose 30% year on year.

  Weaknesses

  Segment reclassification makes year-on-year balance-sheet comparisons not like-for-like.

  Comparison

  Its eSLR requirement fell to 3.5% from 5%.

  Risks

  Expanded balance-sheet capacity and rapid financing growth form part of the late-cycle risk discussion.

• Barclays (BARC.L)

  Analyzed European investment bank with constrained CIB balance-sheet ambitions.

  Weaknesses

  Targets broadly flat IB RWAs over FY25–28E including Basel 3.1 RWA inflation.

  Comparison

  European balance-sheet constraints contrast with expanding US peers.

  Risks

  Competitive disadvantage in balance-sheet-intensive businesses.

• Deutsche Bank (DBKGn.DE)

  Analyzed European investment bank and a top-five FICC player.

  Strengths

  Fixed-income financing revenues increased 3% in euros, or 10% in US dollars, in 1H26.

  Comparison

  Trades at 7.3x 2028E P/E versus an average 14x for covered US investment banks, according to the report.

  Risks

  European balance-sheet constraints and a more diversified earnings strategy may limit expansion.

• UBS (UBSG.S)

  Analyzed European investment bank with a focused FICC model and top-five Equities position.

  Strengths

  Revenue-to-RWA performance improved strongly, reflecting an Equities-oriented business mix.

  Weaknesses

  Maintains a 25% cap on IB RWA share of group excluding NCL.

  Comparison

  Trades at 10.2x 2028E P/E; J.P. Morgan considers the European valuation gap overly discounted.

  Risks

  Deliberate restrictions on IB balance-sheet scale limit participation in financing growth.

• HSBC Holdings plc (HSBA.L)

  Analyzed European bank used in the CIB balance-sheet comparison.

  Strengths

  CIB assets grew alongside DBK, though more slowly than US peers.

  Comparison

  DBK and HSBC CIB assets rose 8% year on year versus 18% for analyzed US banks excluding MS.

  Risks

  European banks face relative constraints in balance-sheet-intensive investment-banking businesses.

Key data

• US bank leverage exposure growth$2.3tn; +13% YoYIncrease across six analyzed US banks over one year.
• US bank total asset growth+11% YoY; +$1.8tn2Q26 growth, approximately twice nominal US GDP growth.
• US CIB asset growth+$1.3tn; +18% YoYFor analyzed banks excluding Morgan Stanley; CIB accounted for more than 90% of year-on-year balance-sheet growth.
• US CIB loan growth+18% YoYAverage growth in 1H26, versus +6% for European banks.
• Equity financing revenue growthGS +57%; MS +75% YoY1H26 growth.
• US group revenue margin on assets+36bp YoY2Q26 improvement despite balance-sheet expansion.
• US share buybacks$57bn; +30% YoYCumulative buybacks by the six analyzed US banks in 1H26.
• US RWA growth+8% YoY2Q26 growth, led by credit RWAs at +9%.

Impact & implications

J.P. Morgan sees continued US investment-bank revenue and EPS-upgrade momentum while activity and financing demand remain healthy. It expects US firms to retain market-share advantages, but argues that the rapid balance-sheet build, lower capital constraints and increased exposure to financing businesses should receive greater investor scrutiny as the cycle matures.

Risks

• Rapid balance-sheet and leverage growth can be associated with weaker underwriting and future credit losses, according to the report's historical comparisons.
• A correction in AI-related expectations could expose credit risks in current thematic financing.
• Normalization in volatility or a correction in commodity prices could reverse some CIB asset growth.
• Limited disclosure on technology financing, correlated risks, one-way risks and European divisional balance sheets constrains risk assessment.
• Lower leverage requirements may encourage more aggressive capital deployment by US banks.

What to watch

• The duration of US-bank re-leveraging, which J.P. Morgan believes could continue for one to two years.
• The quality and concentration of assets behind CIB, trading and financing growth, especially technology-related financing.
• Prime-brokerage balances, margin loans, equity-financing revenue and client activity levels.
• Whether revenue and pre-tax margins remain resilient as balance sheets expand.
• Credit-RWA growth, VaR trends and capital-ratio drawdowns.
• The effect of lower US leverage requirements and the final Basel 3 endgame on capital deployment and shareholder distributions.