TLDR
- Bank of America stock dropped roughly 5% after CEO Brian Moynihan warned investment banking fees could fall 10-20% year-over-year in Q3
- Moynihan forecast Q3 investment banking fees of $1.6B-$1.8B, below last year’s $2B
- Sales and trading revenue is expected to be flat compared to a year ago
- Goldman Sachs fell ~4% and Morgan Stanley dropped ~3.6% on the same day
- Citigroup offered a brighter outlook, with its CFO expecting low-single-digit investment banking growth in Q3
Bank of America shares closed about 5% lower on Monday after CEO Brian Moynihan gave investors an underwhelming view of the bank’s third-quarter Wall Street businesses at the Barclays Global Financial Services Conference.
Bank of America Corporation, BAC
Moynihan said investment banking fees are tracking toward $1.6 billion to $1.8 billion for the third quarter. That is down 10% to 20% from the $2 billion the bank earned in the same period last year.
The drop is a sharp reversal from Q2, when Bank of America reported a 50% jump in investment banking fees and a 33% rise in trading revenue.
Sales and trading revenue is expected to come in roughly flat year-over-year. Moynihan said financing and prime brokerage activity that had lifted results earlier in the year cooled over the summer as investors pulled back on risk.
He acknowledged the slowdown would make it harder for the bank to show revenue growing faster than expenses during the quarter.
Is This a Wider Problem for Wall Street?
The weakness at Bank of America may not be limited to one bank. Data from Jefferies showed that as of September 3, investment banking revenue at eight major global banks was down 15% from a year ago and 27% from Q2.
Bank of America was the worst performer in the KBW Bank Index on Monday. Goldman Sachs fell about 4%, Morgan Stanley dropped around 3.6%, and Citigroup, JPMorgan Chase, and Wells Fargo were each down between 1% and 2%.
The broader investment banking market is also tracking down roughly 10%, according to Dealogic data.
Part of the slowdown has been tied to a sharp unwind in the global AI trade that began in July. Shares of tech giants and chipmakers faced pressure over valuation concerns as spending on AI infrastructure climbed.
Citigroup Strikes a Different Tone
Not every bank is seeing the same pressure. Citigroup CFO Gonzalo Luchetti told investors at the same conference that market revenue is tracking toward mid-single-digit growth from a year ago, helped by equities, financing, and foreign exchange.
Luchetti said investment banking revenue is on pace to grow at a low-single-digit rate, with potential upside if more deals close before the end of the quarter. He added that September is a key month.
Goldman Sachs and JPMorgan Chase could also be better positioned given their broader investment banking operations and strong footholds in mergers and acquisitions and equity capital markets.
On the consumer side, Moynihan said Bank of America’s loans and deposits are growing, and net interest income is in line with expectations. He said he feels good about the underlying US economy.
Analysts on Wall Street still rate Bank of America stock a Strong Buy, with an average price target of $68.86, implying about 15.7% upside from current levels.
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