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The biggest US investment banks generated $36bn in revenues from deals and trading in the last quarter, as volatile markets and corporate debt issuance fuelled a rebound on Wall Street.
The combined figure was 11 per cent higher than a year ago, with Morgan Stanley on Wednesday rounding out the industry’s earnings season with positive results that followed JPMorgan Chase, Goldman Sachs, Bank of America and Citigroup.
The strongest business was underwriting debt and overall the five banks made $8bn in revenues in the third quarter of 2024 from advising on debt and equity deals and acquisitions, 31 per cent higher than a year ago and comfortably ahead of analysts’ expectations.
At Morgan Stanley, investment banking fees increased more than 50 per cent to $1.5bn, a larger increase than any of its rivals. Its shares rose more than 7 per cent to a record high.
Investment banking is recovering from a fallow two years, after the Federal Reserve’s move to raise interest rates from rock-bottom levels in early 2022 choked off a previous boom.
Morgan Stanley chief executive Ted Pick said he was “bullish” that a recovery in initial public offerings and mergers and acquisitions would follow the strong demand for debt issuance.
“It’s not peak capital market activity,” said Morgan Stanley chief financial officer Sharon Yeshaya. “Asset prices are up, there’s some volatility in the market, but investment banking revenues . . . are not yet at their peak. We still have more to go as we go through this capital market recovery.”
Corporate M&A has been particularly active, with more than $2tn in deals announced in the first nine months of 2024. These will translate into lucrative investment banking fees when they close.
Activity from private equity, or so-called financial sponsors, has been more muted but bankers are predicting a pick-up in the months ahead.
“The sponsors have been slower to turn on than I would have expected, but they will turn on,” Goldman chief executive David Solomon said on Tuesday.
Equities trading increased across all five of the large US investment banks, boosted by rising markets in the US, volatility in Japan and China’s stimulus programme at the end of the third quarter. Revenues from the segment were up more than a fifth on the same quarter in 2023 to $12.4bn.
In contrast, revenues from the banks’ fixed income trading units — which include bonds, currencies and commodities trading — fell 2 per cent to $16bn, as bets on the path for US interest rates failed to entirely offset declining activity in commodities.
Outside its investment bank, Morgan Stanley’s wealth management business in the latest quarter attracted almost twice the figure for net new assets of a year ago. It brought in $64bn in the third quarter, and has almost $6tn in client assets.
However, Morgan Stanley’s clients have been keeping a higher proportion of their wealth in cash, which can be less lucrative for banks.
Overall for the third quarter, Morgan Stanley reported a 32 per cent increase in net income from a year earlier, to $3.2bn.
Analysts at Jefferies described the bank’s results as “better across the board” compared with expectations.
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