Bank of America Forecasts 15% Drop in Third-Quarter Investment Banking Fees

Bank of America expects a sharp contraction in its third-quarter 2026 investment banking fees, signaling a distinct slowdown in fee-driven revenues following a robust first half. CEO Brian Moynihan guided that IB fees will land between $1.6 billion and $1.8 billion, representing a year-over-year decline of approximately 15% and a roughly 20% drop from the $2.14 billion recorded in the second quarter of 2026. This projection marks a clear departure from the $2 billion benchmark set in the same period last year, reflecting a cooling market environment for corporate finance activities.

Trading revenues are also showing signs of stalling, with management anticipating sales and trading income to remain relatively flat year-over-year. This implies total capital markets revenue of approximately $6.96 billion to $7.16 billion, down from $7.36 billion in the third quarter of 2025. The combined weakness in IB and trading stems from slower financing volumes and reduced prime-brokerage activity, compounded by an unusually strong performance in the comparable period of the previous year.

Wealth Management Offsets Capital Markets Weakness

Despite the pressure on capital markets income, Bank of America expects wealth management to provide a stabilizing force for overall fee income. Management projects that investment management asset-under-management fees will increase by 10% to 15% year-over-year. This growth is critical because IB fees accounted for nearly 15% of the bank's $13.81 billion in non-interest income during the third quarter of 2025. Consequently, the anticipated decline in IB will create a noticeable drag on total non-interest income, but the expansion in wealth management fees is designed to mitigate a broader collapse in fee-based revenue streams.

The operational impact of this revenue shift is expected to constrain operating leverage in the upcoming quarter. With expenses projected to run around $18.6 billion, the reduction in capital markets income makes it difficult to generate positive operating leverage. However, Moynihan characterized the current deal pipeline as "very strong," suggesting that the recent slowdown is more likely a timing issue related to transaction closings rather than a structural deterioration in demand. This distinction is crucial for maintaining a constructive medium-term outlook on fee income despite the near-term headwind.

Peer Banks Show Divergent Market Expectations

Other financial institutions have presented contrasting outlooks for their capital markets segments. Citigroup expects its markets revenues to grow in the mid-single digits year-over-year, supported by strength in equities, financing, and foreign exchange. The bank also projects low single-digit growth in IB revenues, with potential upside if pending transactions close before the quarter ends. This optimism stands in contrast to Bank of America's more cautious stance, highlighting differing views on the current pace of market activity.

KeyCorp has also adjusted its full-year 2026 guidance, projecting revenue growth of approximately 8%. This represents a slight improvement from its previous target of 7% to 8%, driven by higher non-interest income expected to rise 4% to 5% instead of the prior 3% to 4% range. Net interest income is still anticipated to increase by 9% to 11%. These updates indicate that while some banks are seeing resilient fee income growth, Bank of America faces specific challenges in its capital markets division that are not uniformly shared across its peer group.

Market Reaction to Guidance Details

The guidance released by Bank of America provides a detailed breakdown of where revenue pressures are concentrated within the business model. By isolating the decline in IB fees from the growth in wealth management, the bank clarifies that the issue is sector-specific rather than holistic. Analysts and investors will likely focus on the sustainability of the deal pipeline cited by Moynihan, as this remains the primary driver for future fee income recovery. The juxtaposition of flat trading revenues and growing AUM fees underscores the shifting mix of Bank of America's non-interest income sources.

The source of this financial data, GN stocks/banks, highlights the importance of distinguishing between quarterly volatility and long-term structural trends in banking performance. The reported figures for Bank of America serve as a key indicator of the current state of capital markets activity in the United States. As the bank navigates this period of mixed revenue signals, the ability to manage expenses and maintain strong client relationships in wealth management will be pivotal in determining the overall health of its fee income model.