Wall Street’s biggest banks reported rising investment banking fees in the third quarter fueled by more deals and corporate debt issuance and said their pipeline of new activity looked healthy. However, some areas are slower to rebound.
Bankers are growing optimistic Federal Reserve and other central bank rate cuts in the coming months will boost the pipeline of deals as borrowing becomes cheaper. Buoyant stock markets and increased expectations of a soft U.S. economic landing are also boosting dealmakers’ confidence the year will finish on a high, executives said.
“The big banks have been beating estimates with help from investment banking revenue which is a big diversifier and advantage compared to smaller or mid-sized banks,” said Dave Ellison, a portfolio manager at Hennessy Funds which holds stocks of the six large banks.
Goldman Sachs (NYSE: GS) said investment banking fees rose 20% year-on-year to $1.87 billion, driven by leveraged finance and investment-grade activity, and equity underwriting. Its investment banking fees pipeline increased compared with both the end of the second quarter of 2024 and the end of 2023, Goldman said. Its shares were down around 0.3%
“We are seeing increased client demand for committed acquisition financing which we expect to continue on the back of increasing M&A activity,” Goldman’s Chief Financial Officer Denis Coleman said on a call with analysts.
Goldman’s CEO David Solomon said private equity players are also becoming more active, although they have been slower to deploy capital than the bank expected.
“But we do see more activity and it will continue to accelerate over the next six to 24 months,” Solomon said. He also said there had been a lack of M&A by large companies which he largely attributed to regulatory headwinds.
Bank of America’s (NYSE: BAC) investment banking fees jumped 18%year-on-year to $1.4 billion as improving confidence spurred clients to issue debt and equity. “We feel good about our pipeline,” BofA’s Chief Financial Officer Alastair Borthwick told reporters.
At Citigroup (NYSE: C), investment banking was a bright spot for the second straight quarter, with revenue up 31% driven largely by investment grade debt issuance.
The trading businesses posted mixed results, with equities trading boosted by a bullish stock market, while fixed income, currencies, and commodities (FICC) trading sometimes lagged.
At Goldman Sachs, FICC trading revenues were $2.96 billion, 12% lower than the third quarter of 2023, dragged down by a decline in interest-rate products and commodities. Equities trading revenues were $3.50 billion, up 18% year-on-year.
BofA’s sales and trading revenue rose 12% to $4.9 billion, as equities climbed 18% while FICC rose 8%. At Citi, equities trading revenue jumped 32% to $1.2 billion, but bond trading revenue fell 6% to $3.6 billion.
BofA’s shares were up 1.8%, while Citi’s were down about 1.2% just before noon Eastern time on Tuesday.
Tuesday’s results followed a strong showing by JPMorgan Chase (NYSE: JPM) on Friday, which posted a 31% surge in investment banking fees, doubling guidance of 15% in September. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast.
Wells Fargo (NYSE: WFC) said its non-interest income increased 12%, driven partly by higher investment banking fees and strong trading revenue.
“Now that you have the beginning of the easing cycle, animal spirits are coming back,” said Thomas Hayes, chairman of Great Hill Capital in New York, which holds regional bank shares.
“Trading and investment banking profits are re-accelerating … That part of the business is just getting started.”
Mergers and acquisitions announced worldwide in 2024 totaled $909 billion as of September 30, up 22% year-on-year, Dealogic data showed.
Candy giant Mars’ $36 billion takeover of Cheez-It maker Kellanova (NYSE: K) and Blackstone’s (NYSE: BX) $16 billion buyout of Australian data center operator AirTrunk ranked as the largest deals of the quarter. Citi was a financial advisor to Mars, and also provided Mars financing along with JP Morgan. Goldman Sachs advised Kellanova.
According to Informa Global Markets data, U.S. companies have issued $1.3 trillion in investment-grade bonds year-to-date, 29% more than during the same period last year.
Despite the optimism, dealmakers will be keenly watching the U.S. elections and geopolitical situation which are adding to regulatory and other uncertainties.
“In light of the positive momentum throughout the year, we’re optimistic about our pipeline, but the M&A regulatory environment and geopolitical situation are continued sources of uncertainty,” JP Morgan’s finance chief Jeremy Barnum said.
(Source: Reuters)
Kevin Putnam is a financial journalist and editor based in New York. He specializes in editing news and analysis related to U.S. stock market.
