The Positive Outlook for Financials

By Presidio Wealth Partners on June 18, 2025

An Upbeat 2025 Morgan Stanley Conference

Last week, bank executives gathered at the 2025 Morgan Stanley U.S. Financials Conference to focus on key themes and discuss the business outlook for U.S. banks. The conference was a major two-day event with 125 companies in attendance, featuring presentations across various financial services sectors. With its extensive participation, it provides a unique opportunity for investors to gather strategic insights and understand industry trends that help make informed investment decisions.

As we have been expecting, there were key themes that were bullish for the group, and it remains one of our favorite sectors today. Notably, the keynote was Ted Peck, Morgan Stanley’s CEO, who started off the conference with very positive commentary. In his presentation, he was “super pumped” about business trends, especially in M&A, Equity Capital Markets and IPO activity. Additionally, the consumer remains in good shape because we are likely in the bottoming process in Net Interest Income as favorable deposit mixes. 

2025 Deal and IPO Expansion

Executives highlighted robust market conditions for dealmaking, where Adam Smith of KKR (KKR) noted, “there is $7 trillion of cash on the sidelines that is waiting to be invested, and there is a tremendous amount of capital across different asset classes to finance transactions.” Smith also noted that M&A is a “key driver for future dealmaking, and there has been a feeling that M&A has been depressed since 2021.” We have been vocal that M&A and IPOs have bottomed and that 2025 will see a recovery with more momentum in 2026.

So far, M&A deal value (pending, completed, proposed) is at $2.3 trillion year-to-date, which is up 23% y/y as of June 16. Ted Pick described M&A deals and IPO activity as “a tale of two quarters”, starting with a significant pause due to tariff volatility through May. Then, seeing renewed activity as deal announcements picked up, including several $5 billion transactions that Morgan Stanley advised on.

IPOs continue to expand in 2025, fueled by artificial intelligence. AI’s integration into core business models has become a defining theme, with over 40-50% of IPO filings now being AI-driven. A regulatory shift has also presented opportunities, with defense spending boosting aerospace and defense IPO pipelines by 90% in 2025.[1] This expansion in IPO activity provides banks with strong opportunities to generate revenues through underwriting fees, commissions for selling IPO shares, and revenues for advisory and market research services.

Chart 1: U.S. IPO Shares Surge[2]

Strong Consumer Activity

Brian Moynihan, CEO of Bank of America (BAC) stated that their consumer base moved into the economy about 5% more than they moved in during the month of May last year. That is also consistent with year-to-date, consistent with what they saw happening earlier in the year, and up from about a 4% rate in the first quarter. What goes into the economy moves around the economy. Across May year-to-date, that accounts for about $1.7 trillion of money movement into the economy.

Moynihan also discussed the credit quality strength of the consumer. He noted that charge-offs in the consumer credit area have increased over the last couple of years post pandemic but have dropped since and settled at a very consistent level. The consumer also has available credit capacity, where Moynihan explained that the loan-to-value on Bank of America’s (BAC) home equity loan portfolio is about $0.50 on the dollar.

Truist (TFC) Chairman and CEO Bill Rogers noted that consumers are “still in the game”, with strong spending and confidence. Last month, we saw personal income increase 0.8% m/m, along with personal savings increasing 0.6% m/m. This provides a strong base for consumers to continue to spend and do business with banks over the near term.

Furthermore, Chase card spending data suggests that consumers are not tightening their purses just yet. While total spending ticked down n/n to 2.1% as of May 20, discretionary spending remained up 2.6% month-to-date. Non-discretionary spending grew 1.2%. Gen Zs and millennials spent ~5.9% more month-to-date in May.[3]

The consumer is spending money, something we have been calling for over the last several years. When consumers spend at a healthy rate, the increased spending can lead to more loan generation, more deposits being made and more transactions being processed, which all generate revenue for banks through interest and fees. The strong consumer continues to drive growth and outperform the overall average. Recall, the consumer is 70% of U.S. GDP – so very important.

Chart 2: Discretionary spending remains resilient[4]

Net Interest Income Expansion

Net interest margin is a large portion of banks’ revenues, where they generate them through leveraging the difference between interest income on loans and securities, versus the interest expense on deposits and bank borrowings. Specifically, 53% of Bank of America’s (BAC) and 57% of Wells Fargo’s (WFC) revenues come from net interest income. A growth in net interest income will directly translate to increased revenues and margin expansion for banks.

Bank of America (BAC) CEO Brian Moynihan also described net interest income (NII) and net interest margin (NIM) levels were at a trough, something he brought up on the 1Q conference call. They project $1 billion quarterly NII pickup from Q1 to Q4 in 2025 and expect 6-7% NII growth for 2025. JPMorgan Chase (JPM’s) Jamie Dimon also confirmed for the year NII guide was likely a billion dollars too conservative.

Wells Fargo (WFC) added to the expectations of NIM expansion outlook, projecting NIM to ratchet higher by 2-3 basis points during 2025. While 2025 growth may not be staggering, they expect a rising trajectory for NIM into 2026. The primary driver for the NIM expansion is liability cost reduction through deposit pricing actions.

Wells Fargo Asset Cap Lift

On June 4, Wells Fargo’s (WFC) asset cap was removed after being in place for seven years. Previously, the Federal Reserve placed a $1.95 trillion asset cap on Wells Fargo in 2018 due to a series of scandals. Since then, Wells Fargo has greatly improved its risk governance and risk management programs, leading to this cap lift. This is a significant milestone in the bank’s transformation efforts, and the Federal Reserve voted to lift the cap unanimously. At a minimum, this provides Wells Fargo with a reputational boost, but what does it mean for business? Better growth and stronger market share.

Looking ahead, Wells Fargo can now expand their consumer banking, wealth management and trading operations businesses, because the removal of the cap provides more flexible capital allocation abilities. The bank can now actively pursue more commercial deposits and expand its trading operations, which will directly increase revenues. With the ability to grow its consumer base, the bank can earn more fees for cash deposits, wire transfers, etc. As of Q1 2025, consumer and small business banking accounted for $5.9 billion in revenues, or 30% of the bank’s total revenue. Wells Fargo CFO Mike Santomassimo indicated the bank has been “adding hundreds of bankers in the commercial bank the last couple of years”, and believes the bank lacks market share across the country. With the asset cap lifted, this gives them the ability to expand their market share.

Wells Fargo has been investing in branch refurbishment, completing approximately 1,500-2,000 branches with plans of 750 more this year, adding wealth advisors to branches to target affluent opportunities, and reintroducing incentive plans. After years of advisor attrition, Wells Fargo is now starting to see organic growth in advisors. As of Q1 2025, Wells Fargo reported $3.8 billion in revenues from their Wealth and Investment Management division.

Wells Fargo can also participate in larger deal-making again. While they were not legally prohibited from M&A before, the cap effectively restricted their ability to engage in large deals. Wells Fargo has been actively building out its M&A capabilities, including hiring key personnel and strengthening teams in various market segments, but now it can pursue these deals freely.

Wells Fargo CEO Charlie Scharf has emphasized that growth will be “controlled” and “linear”, not exponential, as the company remains focused on risk management and compliance. With the cap now gone, Wells Fargo aims to reallocate resources to businesses that had been deliberately constrained, offering Wells Fargo the ability to narrow the gap with peers such as JPMorgan Chase (JPM), Bank of America (BAC) and PNC Financial (PNC), which have expanded their asset bases substantially during the same period. In time, we expect a higher return on average tangible common equity (ROTCE) as a result.

[1] Source: AInvest, As of June 11, 2025.

[2] Source: Yahoo Finance, As of June 16, 2025.

[3] Source: J.P. Morgan, As of June 9, 2025.

[4] Source: J.P. Morgan, As of June 9, 2025.