Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Pick, chief executive officer of Morgan Stanley, Marc Rowan, chief executive officer of Apollo Global Management LLC, and David Solomon, chief executive of Goldman Sachs Group Inc., during the Global Financial Leaders Investment Summit in Hong Kong, China, on Tuesday, November 19, 2024.
Paul Yeung | Bloomberg | Getty Images
US investment banks just reported a record quarter, helped by increased trading activity around the US election and an increase in investment banking deal flow.
Traders in JPMorgan Chasefor example, never had a better fourth quarter after seeing revenue rise 21% to $7 billion, while Goldman Sachs’ The stock business generated $13.4 billion for the full year – also a record.
For Wall Street, it was a welcome return to the kind of environment desired by traders and bankers after a quiet period when the Federal Reserve was raising rates while battling inflation. Buoyed by a Fed in easing mode and the election of Donald Trump in November, banks including JPMorgan, Goldman and Morgan Stanley easily exceeded expectations for the quarter.
But the great machine that keeps Wall Street moving is just picking up steam. That’s because, held back by regulatory uncertainty and higher borrowing costs, American corporations have largely stayed on the sidelines in recent years when it comes to buying competitors or selling them.
This is about to change, according to Morgan Stanley CEO Ted Pick. Buoyed by confidence in the business environment, including hopes for lower corporate taxes and softer approvals for mergers, banks are seeing increasing stacks of merger deals, according to Pick and Goldman CEO David Solomon.
Morgan Stanley’s deal pipeline is “the strongest it’s been in 5 to 10 years, maybe longer,” Pick said Thursday.
‘Slamming the table’
Capital markets activity, including debt and equity issuance, had already begun to recover last year, rising 25% from depressed levels in 2023, according to Dealogic figures. But without normal levels of merger activity, the entire Wall Street ecosystem has been missing a major driver of activity.
Multibillion-dollar acquisitions are at the “top of the waterfall” for investment banks like Morgan Stanley, Pick explained, because they are high-margin transactions that “have a multiplier effect across the organization.”
This is because they create the need for other types of transactions, such as massive loans, credit facilities or equity issuance, while generating millions of dollars in wealth for executives that must be professionally managed.
“The last part is what we’ve been waiting for, which are the M&A tickets,” Pick said, referring to the contracts that govern the merger deals. “We’re excited to push it to the rest of the investment bank.”
The results from Goldman on Wednesday prompted veteran Morgan Stanley banking analyst Betsy Graseck to raise her 2025 forecast for the bank’s earnings by 9%.
“We are hitting the table on the subject of recovering capital markets,” Graseck said in a note. “Expect more EPS beats this year as the industry’s trading portfolio grows and investment banking activity recovers.”
The IPO Revival?
Another engine of value creation for Wall Street that has been sluggish in recent years is the IPO market — which is also set to grow, Solomon told an audience of investors and tech workers on Wednesday.
“There has been a significant shift in CEO confidence,” Solomon said earlier in the day. “There is significant backlog from sponsors and an overall increased appetite to do deals supported by an improving regulatory backdrop.”
After a few lean years, it will be a profitable time for Wall Street traders and traders.
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