A perfect setup for the financial sector?
Goldman Sachs Exchanges
Deep Dive
What are the key themes for the financial sector heading into 2025?
The key themes include the state of the economy, which impacts bank performance through net interest income and credit quality; a potential recovery in capital markets activity like M&A and ECM; operational trends in loan and deposit books affecting net interest income; and potential regulatory changes under the new administration, including capital requirements and merger policies.
How could tariffs and inflation impact the banking sector?
Tariffs could lead to fewer rate cuts, keeping bank funding costs higher. If tariffs cause a structural change in inflation expectations, it could steepen the yield curve, benefiting banks with fixed-rate assets repricing at higher yields. However, stagflation or an inverted yield curve could negatively impact banks by limiting asset repricing opportunities.
What regulatory changes are expected under the new administration?
The new administration may review capital requirements, potentially reducing them to support economic growth. The merger environment could become easier, with a focus on increasing competition through larger banks. Additionally, proposals around fees, such as overdrafts and late fees, may be reconsidered to avoid unintended consequences on product and lending availability.
What are the main themes for asset managers in 2025?
Asset managers are focusing on continued allocation to private markets, particularly private equity and infrastructure. They are also pushing into the wealth channel, which currently has low allocations. Additionally, there is a focus on money in motion, with cash moving into fixed income funds as the yield curve steepens, benefiting asset managers.
How might a recovery in M&A and capital markets activity affect alternative asset managers?
A recovery in M&A and capital markets activity could significantly boost private equity deployment and realizations. With over $1 trillion in dry powder and lower financing costs, private equity firms could see a 70% increase in performance fees. Improved public market multiples also make it easier for private market asset holders to exit investments at attractive prices.
What is the outlook for loan growth in 2025?
Consumer loan growth, especially in credit cards, remains strong due to healthy consumer spending. Corporate loan growth has been weak due to tightened underwriting standards, increased capital requirements, and competition from private credit. However, with lower interest rates and improved corporate confidence, corporate loan demand is expected to pick up in 2025.
What are the strategic priorities for banks and asset managers in 2025?
Banks are focusing on organic growth, expanding into new geographies, and improving operating leverage through automation and AI. Asset managers are prioritizing growth in private markets and expanding into the wealth channel. Both sectors are preparing for potential regulatory changes and positioning for a better growth environment.
What are the risks to the bullish outlook for the financial sector?
Risks include policy uncertainty around tariffs, immigration, and corporate taxes; potential stagflation or an inverted yield curve; and slow regulatory changes that could keep banks in a holding pattern. Additionally, high market valuations and unresolved issues in the real estate market could pose challenges.