Major banks on Wall Street have reported an increase in investment-banking fees during the third quarter, driven by a rise in transactions and an uptick in corporate debt issuance. The banks have also indicated that their forecast for future business growth is robust. This optimistic outlook stems from an expected trend of rate reductions by the Federal Reserve and global central banks in the coming months, ultimately making borrowing more affordable and thus boosting the progression of deals.
Factors such as lower interest rates, robust stock markets, and a projected gentle economic slowdown in the US have increased the confidence of dealmakers regarding a positive end to the year. Goldman Sachs reported a growth of 20% in investment banking fees, instigated by leveraged finance, investment-grade activity, and equity underwriting. This rise in fees led to a 3% pre-market increase in the bank’s shares.
The Goldman announced an increase in its backlog of investment banking fees when compared to the end of Q2 2024 and the close of 2023. Bank of America, on the other hand, saw an 18% rise in its investment banking fees amounting to $1.4 billion. This was attributed to a resurgence in recent activities powered by escalating confidence prompting clients to accumulate debt and equity. The bank’s CFO, Alastair Borthwick, expressed confidence in the investment banking pipeline during a media conference call.
At Citi, for the second quarter in a row, investment banking has been a high point, with revenues elevated by 31%, majorly fueled by investment-grade debt issuance. It followed closely on the heels of JPMorgan, which showcased a 31% expansion in investment-banking fees, a significant rise from the 15% predicted back in September.
An 8% rise in trading revenue, surpassing the initially forecasted 2%, has been driven by equities. Similarly, Wells Fargo reported a 12% increase in its non-interest income, partly due to higher investment banking fees and robust trading revenue. The Bank’s CFO, Michael Santomassimo, reported active participation in the investment-grade debt capital markets. Additionally, he mentioned some involvement in the leveraged finance sector and numerous ongoing conversations on the M&A front.
As revealed by Dealogic’s data, global mergers and acquisitions up until September 30th in 2024 saw a 22% increase from the same time the previous year, having amassed a total of $909 billion. This was a significant rise from the previous $744.6 billion recorded in that quarter in 2023.
Among the quarter’s colossal deals were the takeover of Cheez-It creator Kellanova by Mars, a confectionery giant, for $36 billion, and Blackstone’s $16 billion acquisition of AirTrunk, an Australian-based data centre operator. Citi, acting as a financial advisor for Mars, together with J.P. Morgan offered financing services, while Goldman Sachs played a similar role for Kellanova.
The issuance of investment-grade bonds in the US reached $1.3 trillion this year, Informa Global Markets data shows, which is an impressive 29% increase from the preceding year.
“With the Fed starting to cut interest rates, we favour the big banks that rely on both fee and non-fee revenues,” remarked Jon Curran, Principal Asset Management’s head of investment grade credit, in a preview of Tuesday’s earnings pile.
Despite the positive outlook, the upcoming US elections and geopolitical climate may stir regulatory uncertainties, something that dealmakers will be closely monitoring.
Reflecting on the upbeat progress so far this year, JP Morgan’s finance chief, Jeremy Barnum, indicated a sense of optimism about their current projects. However, he acknowledged that uncertainty surrounding the regulatory environment for mergers & acquisitions and the geopolitical situation continue to persist. – Reuters
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