Wall Street’s biggest banks reported a rise in investment banking fees in the third quarter, fueled by more deals and as companies issued more debt, and said their pipeline of new business looked healthy – although in some areas the return is slower.
Bankers are now more bullish as they expect rate cuts in the coming months from the US Federal Reserve and central banks around the world, which will help boost the pipeline of upcoming deals as borrowing becomes cheaper.
Easing interest rates, strong stock markets and heightened US expectations for a soft economic landing have boosted traders’ confidence for a strong end to the year.
Goldman Sachs said investment banking fees rose 20%, driven by leveraged and investment grade activity and equity underwriting. The bank’s shares rose 3% in premarket trading.
Goldman said the backlog of investment banking fees increased compared to both the end of the second quarter of 2024 and the end of 2023.
“We are seeing increased client demand for committed buyout financing, which we expect to continue due to increased M&A activity,” Goldman CFO Denis Coleman said on a conference call with analysts.
Private equity players are becoming more active, Goldman chief executive David Solomon said, although they are lagging expectations.
“Sponsors (private equity firms) are slower to deploy (capital) than we expected, but we are seeing more activity and it will continue to accelerate over the next 6 to 24 months,” Solomon said. Solomon also stated that there has been a lack of mergers and acquisitions by large companies.
BofA’s investment banking fees rose 18 percent to $1.4 billion from a year earlier, boosted by a rebound in activity in recent months as improving confidence prompted clients to issue debt and equity.
Bank of America Chief Financial Officer Alastair Borthwick said in a conference call with media that for investment banking, “we feel good about our preparation.”
At Citi, investment banking was a bright spot for the second quarter in a row, with revenue up 31%, driven mainly by the issuance of investment grade debt.
The results followed a strong showing on Friday from JPMorgan, which posted a 31% rise in investment banking fees, doubling forecasts for a 15% rise in September. The stock pushed trading revenue up 8%, beating the previous forecast for 2%.
Wells Fargo said its non-interest income rose 12%, driven in part by higher investment banking fees and strong trading income.
“We certainly saw a lot of activity in the investment grade debt capital markets,” Wells Fargo CFO Michael Santomassimo said in a media briefing on Friday.
“We’ve also seen some activity in leveraged finance activities, and there’s a lot of activity or discussion on the M&A side, but, it’s going to take some time for that to evolve probably.”
Global mergers and acquisitions announced in 2024 totaled $909 billion through September 30 in the third quarter, up 22 percent from $744.6 billion in the same quarter a year earlier, according to Dealogic data.
Candy giant Mars’ $36 billion acquisition of Cheez-It and Blackstone’s (NYSE:BX) $16 billion acquisition of Australian data center operator AirTrunk ranked as the biggest deals of the quarter.
Citi acted as financial advisor to Mars, while J.P. Morgan and Citi provided Mars with financing. Goldman Sachs is financial advisor to Kellanova.
U.S. investment-grade bond issuance so far this year, at $1.3 trillion, is 29% higher than the year-ago volume, according to data from Informa Global Markets.
“With interest rates now starting to come down as the Fed’s easing cycle begins, we like larger banks that have a mix of businesses that benefit from both fee and non-fee income,” said Jon Curran, head of of Principal Asset Management’s investment-grade credit, ahead of Tuesday’s flurry of gains.
Despite the optimism, dealmakers will be closely watching the US election and the geopolitical situation as they add to regulatory and other uncertainties.
“In light of the positive momentum throughout the year, we are optimistic about our pipeline, but the M&A regulatory environment and the geopolitical situation are continuing sources of uncertainty,” said JP Morgan chief financial officer Jeremy Barnum.
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Reference;
Reuters (2024) Wall Street banks propelled by investment banking gains By Reuters, Investing.com. Investing.com. Available at: https://www.investing.com/news/economy-news/wall-street-banks-propelled-by-investment-banking-gains-3663716 (Accessed: 15 October 2024).
