- The dealmaking and trading windfalls that the pandemic unleashed on US banks keeps piling up as the economy recovers - and U.S. banking leadership point to signs that it's far from over.
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None What the front line of the U.S. A fresh round of earnings reports by five of the nation s largest lenders included growth hauls from investment banking at Morgan Stanley and Bank of America Corp. that were at or near record levels, and dramatic surge in equities trading across the industry, such as a surprising 40% move at Citigroup Inc. Closely watched Goldman Sachs Group Inc. reports its third-quarter results Friday.
The latest phase of the 18 month frenzy was driven by companies eager to do deals as they adjust their businesses and by traders betting on the pace of an economic recovery amid supply chain woes and inflation worries. The outlook, according to several financial industry leaders, is more of that, along with mounting pressure on the Federal Reserve to reduce its emergency pandemic support for the economy.
Investment banking pipelines remain healthy across sectors and regions, and activity will continue on the back of current momentum, Morgan Stanley Chief Financial Officer Sharon Yeshaya told analysts Thursday. Chief Executive Officer James Gorman predicted that Fed tapering would stoke market volatility into next year.
The bonanza from Wall Street operations is a source of relief for banks struggling to recover from low lending operations, which have suffered from lukewarm demand and a prolonged period of low interest rates. JPMorgan Chase Co. the largest U.S. bank said commercial loans were down 2% from a year earlier, while consumer loans fell 5%. The drops were 15% and 7% at Wells Fargo Co., respectively.
The surge in revenue gains and other revenue growth will likely translate to higher compensation costs at JPMorgan in the coming year, as the firm rewards its employees performance, the bank told analysts on Wednesday. Rivals including Citigroup mentioned efforts to beef up their desks with hiring. Bank of America said that the fight for talent will add to its compensation costs, too.
Wall Street s top firms began capitalizing on a golden period for dealingmaking and trading after the pandemic eruptted last year. As the economy fell, corporations rushed to raise money, sparking underwriting and bond trading amid share-price swings. While fixed-income trading has since cooled, customer interest in investment markets has supported significant revenue on the equities desks and propped up a record trend of corporate dealmaking.
Bank of America's investment bankers ended the third quarter with a very strong pipeline of deals that bodes well for the fourth quarter and beyond, finance chief Paul Donofrio told reporters on Thursday.
That echoed the sentiment of his counterpart at JPMorgan, Jeremy Barnum, a day earlier.
Looking ahead to the fourth quarter, the overall pipeline is strong and the M&A market is expected to remain active, Barnum told analysts. He predicted that during the final months of the year, fees from investment banking will be up from the end of 2020 even if they drop from the strong third quarter.
Citigroup has added 200 bankers across its corporate and investment banking arms globally, including in its technology, health care and financial technology practices, said CEO Jane Fraser on Thursday on a conference call.
Certainly the recovery from the pandemic continues to drive confidence, she said. I particularly like the robust pipelines we see over the rest of the year and beyond. Nobody has a plan to reform Citigroup while Tormenting Rivals Loom.
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