Third-quarter results from the Big Five investment banks were characterised by better-than-expected revenues in equities and weakness in FICC. But the gap between the winners and losers in equities was starker than ever.
The breadth and depth of Goldman Sachs, Morgan Stanley and JP Morgan‘s equities businesses powered the results of their investment banks, while the smaller equities franchises at Bank of America and Citigroup underperformed.
So what has driven this divergence and how significant is it to the overall success of the big investment banks?
The average year-on-year revenue growth in equities for the Big Five in the third quarter was broadly in line with the 46% for the first nine months of the year.
But the contrast between individual firms in the quarter was stark, with Goldman up 72%, JP Morgan 49% higher and Morgan Stanley rising 41%, while BofA was up 11% and Citi grew 14%.
The gap over the first nine months was less pronounced. Goldman was up 57%, JP Morgan 49% and Morgan Stanley 44% but smaller franchises also posted strong increases, with BofA up 36% and Citi 33%.
What changed is that the record-setting equities environment became more dependent on financing and the Asia Pacific region. Within equities trading, the Big Three’s strength in derivatives shone through – especially at Goldman.
The bank is the only one of the five firms that breaks out equities revenues between intermediation (ie, trading) and financing (largely prime brokerage). Its third-quarter equities financing revenues almost doubled, rising a staggering 96% year on year, well ahead of the 52% increase in equities intermediation.
There was significant press coverage of how Situational Awareness had become the leading hedge fund client of Goldman’s prime brokerage business. Clearly, the dramatic unwind and sale of this vast AI-focused public equities portfolio to Citadel in late July didn’t leave so much as a scratch on Goldman’s prime unit – and may have even proven profitable for the bank.
Financing made up 52% of Goldman’s third-quarter equities revenues – up from 49% in the first quarter and 44% in the second. The average in the first nine months of 2025 was 41%.
As well as benefiting from its overall leadership in hedge fund prime brokerage, Goldman has made equity financing in Asia an area of significant multi-year investment. The recent boom in Asian tech stocks and increased participation of US hedge funds in the region have been a boon for Goldman.
A strong footprint in Asian equities trading has also worked out well for Morgan Stanley.
In the third quarter, overall revenues from Asia increased by 90% and 55%, respectively, for Goldman and Morgan Stanley. Asia contributed 20% of revenues at both firms, compared with 13% for Goldman and 14% for Morgan Stanley in the third quarter of 2025.
In trading, Goldman management cited equity derivatives – not cash equities – as the key driver of the strong growth in equities intermediation revenues. Intermediation’s year-on-year revenue growth also accelerated last quarter.
Equities have historically played second fiddle to the much larger FICC franchises, which incorporate a wider selection of products, asset classes, geographies and customer bases.
But in both Q3 2026 and the first nine months of 2026, equities revenues for the Big Five were larger than FICC revenues and around twice the size as revenue from investment banking.
The shift towards equities has also played into the earnings power of investment banks. At one extreme in Q3 2026 was Morgan Stanley, where equities revenues were almost three times the size of FICC; at the other was Citi, where FICC was around two-and-a-half times the size of equities.
Mix differences can also help explain the relative performances of FICC franchises. Citi’s focus on foreign exchange and emerging markets and underweight exposure to credit and securitised trading helped it outperform peers in the quarter.
But this has not been a multi-quarter, let alone a multi-year, trend.
On the other hand, the outperformance of the Big Three in equities – not just against Bank of America and Citigroup, but against the whole investment banking universe – has certainly been pronounced.
Competing banks regularly make noises about investing in prime brokerage or even equity derivatives but have struggled to keep up over the past five years. Third-quarter results show this gap has only widened.
“Demand for equity financing continues to outpace available industry capacity, underpinning attractive pricing and enabling us to deploy resources selectively,” Goldman CFO Denis Coleman said on the bank’s Q3 earnings call.
To translate from understated CFO-speak: “Woohoo! We’re absolutely coining it in in equity financing! And our moat means that’s going to continue.”
Rupak Ghose is a corporate adviser and former financials research analyst. Read his Substack blog here.
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