Banks have never had it this good

"Banking is entering its Renaissance age." That was the subject line on a pitch that landed in my inbox this week. The pitch was about banking and AI in some form or fashion, and frankly the pitch didn't grab me. But the subject line did. 

I mean, has there ever been a better time to be a banker? The industry is incredibly profitable, it has a pliant set of federal regulators, and it is in the midst of a hopping credit cycle.  JPMorganChase made more money in the last three months than any U.S. bank has ever made in any other three-month period. Goldman Sachs reported earnings nearly doubled. These are not fast-growing startups. These are mature, very mature, companies. They are expected to grow — that's the whole point of for-profit companies — but they are not expected to grow like that.

And it's not just the profits. JPMorgan paid out $4 billion in dividends and bought back $6.2 billion worth of shares. Goldman paid $1.4 billion in dividends and bought back $4 billion worth of shares. Citi spent $5 billion on dividends and buybacks. Maybe there's never been a better time to be a bank shareholder, either. 

What's driving all this is a booming credit cycle, headlined by the over-the-top capital spending for AI infrastructure. It's also showing up in M&A demand and equity and debt issuance. Indeed, the market is so wide open and hot right now that a clutch of banks including Goldman, JPMorgan and Bank of America were able to get a $2 trillion valuation in the IPO for SpaceX, a company that looks like parts from different jigsaw puzzles smashed together, and which is losing billions more than it is generating in revenue, and whose big headline seems to be it plans to stand up the equivalent of Austin, Texas, on a planet upon which no human has ever set foot. 

"When it all goes right, you get a quarter like 2Q26," analysts at Bank of America wrote. 

Oh, it's all going right, all right, and the banks are getting frisky. PNC executives said they expect expenses to rise as they try to take advantage of the favorable tailwinds, and they weren't the only ones saying that. Citi and JPMorgan echoed the thought. And Morgan Stanley is looking at deals for a place to use its capital. 

In fact, the only part of the banking industry that isn't booming is employment. The entire financial services sector had about 9.1 million employees as of June, slightly below the 9.2 million it employed in June 2023 when hiring crested post-pandemic, according to government data. Commercial banks employed about 1.36 million employees, compared to 1.38 million a year ago. Which means, broadly speaking, that if banks' expenses are rising, they're not rising for the usual reason. 

Look at Bank of New York Mellon, where profits hit a record but staff is down 7% from a year ago. The company's executives said they are seeing "tangible and measurable" benefits from AI. Bank of America executives, too, made a big deal about their use of AI, saying it's been helping them improve efficiency and boost revenue. The bank has approved more than 300 use cases of AI, CEO Brian Moynihan said, "all of which have good economics." BofA's headcount hasn't gone down much, from AI or anything else, but it's not going up much, either.

The only possible, tiny, barely visible red flag in all this is that the credit cycle is called a cycle for a reason, and not a credit straight-line-rising-to-heaven-and-nothing-will-ever-change. The fact that so many executives are openly and pretty aggressively talking about boosting spending indicates they understand this and know that, as a former member of the club once said, "as long as the music is playing, you've got to get up and dance." If you don't know, that was Chuck Prince, the then CEO of Citi, and he said that to the Financial Times in 2007. Importantly, though, Prince knew exactly what he meant, because the total quote is this: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing you've got to get up and dance. We're still dancing."

The music is still playing at the Renaissance Faire that is the banking industry right now. Probably best not to think about when it'll stop.