Jonathan Gray, president and chief operating officer of Blackstone Inc., from left to right, 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, CEO 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 announced a record quarter, helped by rising trading activity around the US elections and an uptick in deal flow for investment banks.
Traders at JPMorgan Chasefor example, have never had a better fourth place quarter after sales rose 21% to $7 billion, while Goldman Sachs The equities business generated $13.4 billion for the year file.
For Wall Street, it was a welcome return to the kind of environment traders and bankers craved after a quiet period in which the Federal Reserve raised interest rates as it struggled with inflation. Boosted by an easing Fed and the election of Donald Trump in November, banks like JPMorgan, Goldman and Morgan Stanley Easily exceeded expectations for the quarter.
But the great machinery that keeps Wall Street moving is just picking up steam. That’s because U.S. companies, deterred by regulatory uncertainty and higher financing costs, have mostly sat on the sidelines in recent years when it came to buying competitors or selling themselves.
That’s going to change, he said Morgan Stanley CEO Ted Pick. Buoyed by confidence in the business environment, including hopes for lower corporate taxes and smoother merger approvals, banks are seeing increasing backlogs on merger deals, said David Solomon, CEO of Pick and Goldman.
Morgan Stanley’s deal pipeline is “the strongest in five to 10 years, maybe even longer,” Pick said Thursday.
‘Slap the table’
Capital markets activity, including bond and equity issuance, had already started to recover last year, rising 25% from 2023 lows, according to Dealogic figures. But without normal levels of merger activity, the entire Wall Street ecosystem has missed a key driver of activity.
Billion-dollar acquisitions are at the top of the waterfall for investment banks like Morgan Stanley, Pick explains, because they are high-margin transactions that have a multiplier effect for the entire organization.
That’s because they create the need for other types of transactions, such as massive loans, credit facilities or stock issuances, while generating millions of dollars in wealth for executives that must be professionally managed.
“The last piece is what we’ve been waiting for, which is merger and acquisition tickets,” Pick said, referring to the contracts that govern merger deals. “We are excited to pass this on to the rest of the investment bank.”
Goldman’s results on Wednesday spurred veteran banking analyst Betsy Graseck of Morgan Stanley to raise her forecast for the bank’s 2025 earnings by 9%.
“We are busy with the theme of the recovery of the capital markets,” Graseck said in a note. “Expect higher earnings per share this year as the sector’s trading book grows and investment banking activity recovers.”
IPO revival?
Another driver of value creation for Wall Street that has been sluggish in recent years is the IPO market – which will also pick up, Solomon told an audience of technology investors and employees on Wednesday.
“There has been a meaningful shift in CEO confidence,” Solomon said earlier that day. “There is a significant backlog of sponsors and an overall greater willingness to do deals, supported by an improving regulatory environment.”
After a few lean years, this should make for a profitable time for Wall Street’s dealmakers and traders.
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