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Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Peek, chief executive officer of Morgan Stanley, Mark Rowan, chief executive officer of Apollo Global Management. LLC and David Solomon, Chief Executive Officer of Goldman Sachs Group Inc., during the Global Financial Leaders Investment Summit in Hong Kong, China, Tuesday, November 19, 2024.
Paul Jung | Bloomberg | Getty Images
US investment banks just posted record highs for the quarter, boosted by increased trading activity around the US election and increased investment banking deal flow.
Traders of St JPMorgan Chasefor example, there was never a better fourth quarter after revenue rose 21% to $7 billion Goldman Sachs the stock business received $13.4 billion for the full year – also a recording.
For Wall Streetit was a welcome return to the type of environment that traders and bankers craved after a subdued period when the Federal Reserve was raising rates how to fight inflation. Banks including JPMorgan, Goldman and Morgan Stanley easily refilled expectations per quarter.
But the huge machine that supports Wall Street is only gaining momentum. That’s because U.S. corporations, held back by regulatory uncertainty and higher borrowing costs, have largely sat on the sidelines in recent years when it came to buying rivals or selling themselves.
That’s about to change, according to Morgan Stanley CEO Ted Peek. Buoyed by confidence in the business environment, including hopes for lower corporate taxes and smoother merger approvals, banks are seeing a growing backlog of merger deals, according to Peake and Goldman CEO David Solomon.
Morgan Stanley’s deal pipeline is “the strongest it’s been in the last 5 to 10 years, maybe even more,” Peek said Thursday.
“Knock on the Table”
According to Dealogic, activity in the capital markets, including debt and equity issuance, has already started to recover last year, increasing by 25% from the low level of 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, Peek explained, because they are high-margin transactions that “have a multiplier effect throughout the organization.”
This is because they create the need for other types of transactions, such as large loans, lines of credit or equity issuance, while simultaneously creating millions of dollars in wealth for executives to manage professionally.
“The last part is what we’ve been waiting for, which is the M&A tickets,” Peek said, referring to the contracts that govern merger deals. “We’re very excited to push this to the rest of the investment bank.”
Goldman’s results on Wednesday prompted veteran Morgan Stanley banking analyst Betsy Grasek to raise her profit forecast for the bank by 9%.
“We are knocking on the subject of recovery in capital markets,” Grasek said in a note. “Expect more earnings per share growth this year as the industry’s trading wallet grows and investment banking activity recovers.”
Another engine of value creation on Wall Street that has been sluggish in recent years is the IPO market — which is also set to pick up, Solomon told 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 significant backlog from sponsors and an overall appetite for deals, supported by an improving regulatory framework.”
After several years of poverty, this should be a profitable period for traders and Wall Street traders.
