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, 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
American investment banks just reported a record-breaking quarter, helped by increasing trading activity related to the US election and a pick-up in investment banking deal flow.
dealer at JPMorgan Chasefor example, never had a better fourth quarter after revenue rose 21% to $7 billion Goldman Sachs' The equity business generated $13.4 billion for the full year – also a record.
For Wall Street, it was a welcome return to the environment traders and bankers craved, after a subdued period in which the Federal Reserve raised interest rates while struggling with inflation. Helped by Fed easing and the election of Donald Trump in November, banks like JPMorgan, Goldman and Morgan Stanley significantly exceeded expectations for the quarter.
But the big machine that keeps Wall Street moving is just picking up speed. Deterred by regulatory uncertainty and higher credit costs, US corporations have mostly been left behind in recent years when it comes to buying competitors or selling themselves.
That should change, they say 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 growing merger backlogs, according to 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.
“Bang on the table”
According to Dealogic figures, capital market activity, including debt and equity issuances, had already begun to recover last year, rising 25% from low levels in 2023. But without a normal level of merger activity, the entire Wall Street ecosystem is missing a key 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 throughout the organization.”
That's because they create the need for other types of transactions such as massive loans, credit facilities or equity offerings, 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 M&A tickets,” Pick said, referring to the contracts that govern merger deals. “We look forward to rolling this out to the rest of the investment bank.”
Goldman's results on Wednesday prompted Morgan Stanley senior banking analyst Betsy Graseck to raise her forecast for the bank's 2025 earnings by 9%.
“We are dealing with the topic of capital market recovery,” said Graseck in a statement. “Expect more EPS beats this year as industry trading funds grow and investment banking activity picks up.”
IPO revival?
Another driver of value creation for Wall Street that has been slow 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 significant shift in CEO confidence,” Solomon said earlier in the day. “There is a significant backlog of sponsors and an overall increased willingness to do deals, supported by an improving regulatory backdrop.”
After a few lean years, it should be a profitable time for Wall Street's dealmakers and traders.
REGARD: Goldman Sachs beats estimates
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