Khan Capital | April 2026
Key Takeaways
- A record capital markets quarter: The six largest US banks collectively delivered their strongest trading quarter on record in Q1 2026, with combined equities and fixed income revenues exceeding expectations by more than $3 billion versus consensus, as the Iran war, the Hormuz blockade, and an oil shock fuelled cross-asset volatility.
- Goldman Sachs and Morgan Stanley led on equities: Goldman posted a firm record $5.33 billion in equities revenue, while Morgan Stanley set its own record at $5.15 billion, with both banks citing prime brokerage and derivatives as the primary drivers.
- Investment banking fees accelerated: Goldman’s IB fees rose 48% year on year, JPMorgan’s climbed 28%, and Morgan Stanley’s advanced 36%, suggesting the 2024-2025 deal drought is ending despite a worsening macro backdrop.
- Guidance is cautious, not celebratory: JPMorgan cut its full-year net interest income guidance from $104.5bn to $103bn; Bank of America lifted its NII range to 6-8%, reflecting the shift from expected cuts to no cuts in the curve.
- The paradox for institutional allocators: Record trading results coexist with an IMF growth downgrade to 3.1%, an oil shock, and 3.3% CPI. The question is whether capital markets earnings are a durable franchise reset or a cyclical volatility dividend that will compress as conditions normalise.
A Quarter Built on Volatility
The first-quarter 2026 earnings season began this week with a sequence of results that would be difficult to reconcile with the macro backdrop if observed in isolation. Between 14 and 16 April, JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America, Wells Fargo, and Morgan Stanley reported numbers that were, taken together, the strongest quarterly capital markets print in the post-GFC era. Equities and fixed income trading revenues were records or near-records at every major house. Investment banking fees accelerated sharply. And yet the same quarter contained a war in the Middle East, a US Navy blockade of the Strait of Hormuz, a CPI print that showed inflation at a two-year high, and an IMF growth downgrade that described the global economy as operating “in the shadow of war”.
The resolution of that apparent contradiction is straightforward but worth stating plainly. Wall Street Q1 2026 earnings were not a statement about the underlying economy. They were a statement about the price of volatility. When oil jumps 50% in a quarter, when the VIX sits elevated for weeks, when every central bank’s forward curve is rewritten, the institutions that sit at the centre of the capital markets plumbing collect tolls on every repriced risk in the system. The first quarter of 2026 delivered an unusually large volume of that toll collection.
For institutional allocators, the question is not whether the headline numbers were impressive (they were) or whether the market reaction was justified (bank share prices have outperformed the S&P 500 by several hundred basis points year to date). The question is how much of Q1’s revenue is a durable franchise reset and how much is a transient volatility dividend that will compress as conditions normalise. That distinction matters more than any individual beat.
Trading: The Volatility Dividend in Numbers
The headline numbers tell a remarkably consistent story. At JPMorgan, fixed income trading revenue rose 21% to $7.08 billion, the largest quarterly FICC print in the firm’s history. At Citigroup, markets revenue expanded 19% year on year to $7.2 billion, with the bank reporting its highest quarterly revenue in a decade at $24.6 billion. Bank of America recorded its sixteenth consecutive quarter of year-on-year trading revenue growth, with equities up 29.6% and fixed income up 1%. Morgan Stanley’s equities desk set a firm record at $5.15 billion, up 25% year on year, while its fixed income unit expanded 29% to $3.36 billion.
Goldman Sachs was the standout. Equities revenue reached $5.33 billion, an all-time record for the firm, driven by prime brokerage activity and derivatives flows from hedge funds repositioning around energy, rates, and geopolitical risk. Fixed income, currencies and commodities revenue was similarly strong, with the bank noting that commodities desks benefited directly from the Hormuz-driven oil move. Overall firm revenue reached $17.23 billion on earnings of $17.55 per share, well ahead of the $16.47 consensus.
Two structural points are worth emphasising. First, the rotation toward equities trading as a share of bank revenue is real and, for the large houses, appears to be compounding. Prime brokerage in particular has become a highly scaled business concentrated among a handful of providers, with Morgan Stanley, Goldman, and JPMorgan collectively servicing the majority of hedge fund balances. In a quarter marked by rapid repositioning, the scale advantages of these incumbents became visible in the operating leverage. Morgan Stanley’s first-quarter return on tangible common equity of 27% is the clearest expression of that leverage.
Second, fixed income performance was more nuanced than the headline suggests. The uplift was driven disproportionately by macro and commodities desks; pure rates trading was solid but unremarkable. This is consistent with the nature of the quarter: the repricing was concentrated in oil, gold, emerging market currencies, and the front end of the curve, rather than in the belly where the largest sustained flows typically sit. That concentration helps explain why JPMorgan and Morgan Stanley, with heavier macro and commodities footprints, outperformed versus more rates-centric peers.
Investment Banking Reopens
If trading captured the quarter’s volatility, the investment banking numbers captured something more strategically interesting: the reopening of the capital markets issuance window after eighteen months of suppressed activity. Goldman’s IB fees rose 48% year on year. Morgan Stanley’s climbed 36% to $2.12 billion. JPMorgan’s advanced 28% to $2.88 billion. Bank of America’s increased 23.6%. Citigroup’s rose at double-digit pace.
Equity underwriting was the fastest growing line at Bank of America, rising 31.3%, consistent with a broader reopening of the IPO and secondary offering calendar. Our own coverage of the SpaceX $1.75 trillion IPO filing on 1 April, the largest listing in history, is one visible datapoint; the broader pipeline of later-stage private companies reconsidering public-market access has been building for several quarters. The Q1 numbers suggest the shift from intention to transaction is now underway.
The M&A advisory line deserves particular attention. Completed deal fees lag announced activity by three to nine months, which means the surge in Q1 advisory fees reflects deals announced in the second half of 2025, when the macro backdrop was materially more benign. The pipeline of announcements in Q1 2026 itself was more mixed, shaped partly by strategic repositioning around tariffs and energy and partly by continued financial sponsor activity as private equity firms worked through their inventory of portfolio companies. The secondary market in private equity stakes, which we analysed in our private equity secondaries coverage, continues to provide a supporting bid to advisory revenues.
Debt underwriting, in contrast, told a more cautionary story. Investment grade issuance was resilient on the back of refinancing activity, but high-yield issuance was lighter as spreads widened in late March. At Bank of America, debt underwriting income rose only 2.7% year on year, a stark contrast to the 31.3% gain on the equity side. This bifurcation matters because it suggests the capital markets reopening is most vigorous for high-quality, non-cyclical borrowers, and remains selective for the credit tail.
Bank-by-Bank Scorecard
| Bank | Revenue | EPS / Beat | Trading Revenue | IB Fees YoY |
|---|---|---|---|---|
| JPMorgan Chase | $50.54bn (+10%) | $5.94 (beat) | FICC $7.08bn (+21%) | +28% |
| Goldman Sachs | $17.23bn | $17.55 (vs $16.47) | Equities $5.33bn (record) | +48% |
| Morgan Stanley | $20.6bn (record) | $3.43 (vs $3.02) | Equities $5.15bn, FICC $3.36bn | +36% |
| Citigroup | $24.6bn (10-yr high) | $3.06 (+56% YoY) | Markets $7.2bn (+19%) | Double-digit |
| Bank of America | $30.43bn (+7.2%) | $1.11 (vs $1.00) | Sales & trading $6.32bn (+12%) | +23.6% |
| Wells Fargo | Missed (NII pressure) | Net income +15% | Limited trading footprint | Moderate |
TradingView Chart: KBW Bank Index
Wealth and Asset Management: The Quiet Compound
Beneath the trading headlines, a quieter but arguably more important story played out in the wealth and asset management businesses. Morgan Stanley’s wealth management revenue climbed 16% to a record $8.52 billion, with the firm reporting $118 billion of net new assets and $54 billion of fee-based flows in a single quarter. This is a level of organic asset accumulation that, annualised, would represent close to 5% growth on the existing base, a pace the firm has not sustained for more than a few quarters at a time in the post-2020 era.
The institutional significance of that number is that it anchors the valuation of the franchise. Wealth and asset management revenues carry far higher earnings multiples than trading revenues because they are fee-based, relatively inelastic to market cycles, and compound over multi-year holding periods. When Morgan Stanley trades at a higher multiple than Goldman Sachs (and it does), that premium reflects the durable nature of the wealth business, not the quarterly trading volatility.
Goldman’s own asset management build-out, while smaller in absolute terms, produced supportive results, and JPMorgan’s asset and wealth management division continued to grow fee-based revenues at a mid-single-digit clip. The trajectory is consistent with a broader structural shift in the large US banks toward recurring, fee-based revenue lines and away from balance-sheet-intensive lending and market-making. The Q1 2026 results accelerated rather than interrupted that shift.
Credit Quality and the Macro Shadow
The credit books across the six banks were, in aggregate, stable. Net charge-offs were broadly in line with expectations, and commercial real estate, while still the segment most watched by analysts, did not produce the disruption some had anticipated heading into the quarter. JPMorgan’s CET1 capital ratio stood at 15.1% at period end, providing a substantial buffer against any downside scenarios. Bank of America generated 290 basis points of operating leverage and lifted its return on tangible common equity to 16%.
That said, forward guidance was more guarded than the backward-looking numbers. JPMorgan reduced its 2026 full-year net interest income guidance from $104.5 billion to approximately $103 billion, citing the mix shift in its deposit base and the compression of asset yields as the fed funds curve stabilised. The reduction is small in percentage terms but directional. It was accompanied by commentary, on the earnings call, that the credit environment remained “broadly stable” but with “increased dispersion” in subprime consumer and certain commercial portfolios.
Bank of America moved in the opposite direction, raising its full-year NII growth range to 6-8%, in part because the rate curve has repriced from expecting two cuts in 2026 to pricing no cuts, as we explored in our analysis of the Fed’s hawkish March minutes. That divergence in guidance is instructive: the banks with more asset-sensitive balance sheets are now benefiting from the shift to “higher for longer”, while those with deposit-heavy funding structures are seeing less uplift.
The forward credit view deserves particular scrutiny. The banks are reporting strong current credit numbers into an economy that the IMF has just described as operating under the shadow of an oil shock. CPI is 3.3% and rising. Consumer discretionary spending growth has decelerated. High-yield spreads have widened modestly from tights. History suggests credit turns lag the macro, often by six to twelve months. Investors should note the divergence between the clean Q1 credit print and the deteriorating forward macro signals, and assume that reserve builds will become more consistent from Q2 onwards, even if the banks themselves do not yet flag them.
What the Market Is Underappreciating
Three features of the Q1 2026 print are being underappreciated by mainstream commentary.
The first is the extent to which trading results reflect a concentrated scale advantage rather than a broad industry windfall. The largest five houses captured an outsized share of the incremental volatility revenue. Smaller prime brokerages, regional broker-dealers, and second-tier investment banks did not report anything like the same uplift. This is a structural story, not a cyclical one. The regulatory and balance-sheet demands of modern market-making have concentrated the business among a handful of providers, and Q1 2026 showed what happens to that concentrated franchise when conditions reward scale. The market is reading the numbers as cyclical; they are arguably in part structural.
The second is the implication for the competitive position of the non-bank financial sector, particularly private credit and alternative asset managers. The reopening of the syndicated leveraged loan and high-yield markets in Q1 puts competitive pressure on the private credit funds that gained share during the 2023-2024 disintermediation, as we flagged in our Private Credit Crackup analysis. If banks can underwrite and syndicate large LBO paper on tighter terms than private credit funds, some share will return. The Q1 investment banking numbers are the first quantitative evidence of that pressure.
The third is the implication for equity market breadth. The bank sector has quietly outperformed the S&P 500 year to date, even through the February-March drawdown we covered in our Q1 correction retrospective. A durable bank rally broadens equity leadership beyond the concentrated megacap technology names, as we have argued in our concentration risk analysis. If Q2 confirms the capital markets reset, the breadth story matters materially for passive allocations and risk parity portfolios.
Investor Implications
For equity allocators, the quarter crystallises a positioning question that has been building since late 2025: how much of the 2026 earnings surprise is concentrated in a handful of financial and technology franchises, and what does the resulting breadth look like? The large US banks are now carrying market-implied return on tangible equity in the mid-to-high teens, which reprices the multiple that can be sustainably assigned to the sector. Allocators with underweight positions in financials relative to benchmark may wish to consider whether the structural scale advantages visible in Q1 justify a recalibration. Those already overweight should consider the tactical question of how to monetise the volatility dividend before mean reversion compresses trading revenues.
For fixed income investors, the guidance divergence between JPMorgan and Bank of America is a practical reminder that the “higher for longer” regime affects bank balance sheets asymmetrically. Asset-sensitive banks may continue to deliver NII expansion; deposit-heavy banks may not. In a world where fed funds cuts are priced out and the long end is anchored by fiscal concerns, positioning around bank subordinated debt and preferred securities may deserve a second look. High-yield spreads have widened modestly but remain inside their long-run median; the risk-reward in credit is shifting toward defensive quality.
For cross-asset allocators, the most important implication is the signal on capital markets activity. The IB fee acceleration across every major house is consistent with a reopening of the primary issuance window. That has second-order implications for the supply of investable equity (increased), the pipeline of IPO and secondary allocations (larger), and the opportunity set for event-driven strategies (expanding). Allocators to hedge funds and liquid alternatives should note that Q1 is exactly the sort of quarter in which dispersion and volatility benefit active strategies, and the Q1 prime brokerage prints suggest hedge fund gross and net positioning is already elevated. The question for H2 is whether that positioning proves to be accurately calibrated or whether the unwind adds to volatility when the macro shoe drops.
None of these framings should be read as recommendations. Each allocator’s mandate, liquidity tolerance, and benchmark definition will shape the appropriate response. The broader point is that Q1 2026 has repriced the franchise value of the large US banks in ways that require active consideration rather than passive acceptance of either narrative extreme.
Conclusion
The Q1 2026 earnings season opened with a message that was easy to misread. Record trading revenues, accelerating investment banking fees, and compounding wealth franchises produced a set of headline prints that looked inconsistent with the war, the oil shock, and the IMF growth downgrade announced in the same week. The inconsistency is only apparent. The large US banks sit at the centre of the capital markets plumbing, and the price of volatility is paid to them. A quarter defined by repricing across oil, rates, currencies, and equities was also, by construction, a quarter of toll collection.
The more enduring question is what fraction of the Q1 revenue base compounds through more benign conditions. Scale advantages in prime brokerage, the reopening of the IB issuance window, and the continued compound in wealth management all suggest that a meaningful portion of the print is structural rather than cyclical. The cautious forward guidance from JPMorgan, the asymmetric NII outlook across the sector, and the looming credit cycle all suggest the volatility dividend itself is unlikely to recur at Q1’s pace. For institutional investors, the task now is to separate the two, and to position for the part that lasts.
Sources: JPMorgan Q1 2026 earnings (CNBC); Morgan Stanley Q1 2026 earnings (CNBC); Bank of America Q1 2026 earnings (CNBC); Citigroup Q1 2026 results; FactSet Financials Q1 2026 preview; IMF World Economic Outlook April 2026; BLS March 2026 CPI release; CNN: Oil prices and Hormuz blockade.
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Related Reading: For context on the macro backdrop shaping this earnings season, see our coverage of the Fed’s hawkish March minutes and the Q1 2026 market correction. For the competitive pressure on bank capital markets from alternatives, read our Private Credit Crackup and KKR, Apollo, and the alternative asset manager model. For the broader equity breadth implications, see our analysis of market concentration risk and the great diversification rotation.
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