May 22, 2024

Westside People

Complete News World

Wall Street says the Wall Street recovery has finally arrived

Wall Street says the Wall Street recovery has finally arrived

Wall Street is rising again. This time, bank executives say it's real.

Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Morgan Stanley (MS), and JPMorgan Chase (JPM) all reported jumps in investment banking in the first quarter.

They did so because initial public offerings, bond issuances, and in some cases mergers and acquisitions, beat analysts' expectations.

Collectively, revenues for the five largest banks rose 26.6% compared to last year, to $8.08 billion. The biggest jump was 34% for Bank of America, followed by increases of 32% for Goldman and Citigroup.

CEOs do not hide their enthusiasm for this transformation, after two years of stagnation in deal making.

“The pipeline is clearly growing,” Ted Beck, head of Morgan Stanley, told analysts on Tuesday, repeatedly using the word “global bullishness” to describe his outlook.

Wall Street is in the “early stages of a multi-year merger and acquisition cycle.”

“We are clearly in the early stages of reopening capital markets,” Goldman Sachs CEO David Solomon said on Monday, adding, “I have said before that historically low levels of activity will not last forever.”

The investment banking rebound for these banks couldn't have come at a better time, serving as a boost as rising interest rates began to eat into traditional consumer banking margins.

Morgan Stanley's incoming CEO, Ted Beck, poses for a photo in New York City, US, on December 21, 2023. Photograph: Jenna Moon/Reuters

Morgan Stanley CEO Ted Beck. Reuters/Gina Moon (Reuters/Reuters)

Wall Street has been waiting for this moment for two years, and has endured repeated false starts.

Last year was supposed to be the year things changed, as executives promoted a series of initial public offerings and merger announcements. Instead, 2023 was the worst year for deal-making in a decade, as clients became cautious about everything from the direction of interest rates to relations with China to the larger U.S. economy.

See also  Sources say OPEC+ is weighing the rollover against a small production cut

Investment banking revenues at the Big Five banks that run large Wall Street operations fell by 9% on average last year. The portion of these fees associated with advice provided on mergers or acquisitions fell further, by 21% on average.

David Solomon, CEO of Goldman Sachs, testifies during a Wall Street oversight hearing held by the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, D.C., on December 6, 2023. Major U.S. banks protested against new capital requirements proposed in Congressional hearing on December 6, 2023. Wednesday, he joined Senate Republicans in calling the measures unfair loans to ordinary Americans.  (Photo by Saul Loeb/AFP) (Photo by Saul Loeb/AFP via Getty Images)David Solomon, CEO of Goldman Sachs, testifies during a Wall Street oversight hearing held by the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, D.C., on December 6, 2023. Major U.S. banks protested against new capital requirements proposed in Congressional hearing on December 6, 2023. Wednesday, he joined Senate Republicans in calling the measures unfair loans to ordinary Americans.  (Photo by Saul Loeb/AFP) (Photo by Saul Loeb/AFP via Getty Images)

Goldman Sachs CEO David Solomon. (Photo by Saul Loeb/AFP) (Soul Loeb via Getty Images)

Some executives even had to back away from talk of “green shoots” after the hoped-for increase in deals failed to materialize.

“We're tired of predicting” when investment banking will return, Alistair Borthwick, Bank of America's chief financial officer, said in October.

But this time CEOs are more optimistic, citing the need for companies to grow or restructure in the wake of the pandemic along with private equity mandates to return gains to their investors – known as limited partners (LPs).

“Corporate boards have been quiet for three or four years, and that's not sustainable,” Morgan Stanley's Peck said. “They need to move.”

Goldman Sachs' Solomon added that limited partners who have invested in private equity firms “are putting a lot of pressure on the financial sponsor community to return more capital.”

“So I think the pace will accelerate in the coming quarters.”

Trading was another positive for Wall Street's five big banks in the first quarter, as those revenues rose nearly 1% from a year ago to $31.52 billion and beat analysts' expectations.

Equities were stronger than fixed income. Only Goldman Sachs had revenue from fixed income trading that was higher than last year.

Jim DeMar, head of global markets at Bank of America stands on the trading floor of the Bank of America Tower in Manhattan, New York City, New York, US, November 2, 2022. REUTERS/Andrew KellyJim DeMar, head of global markets at Bank of America stands on the trading floor of the Bank of America Tower in Manhattan, New York City, New York, US, November 2, 2022. REUTERS/Andrew Kelly

Jim DeMare, head of global markets at Bank of America. Reuters/Andrew Kelly (Reuters/Reuters)

Bank executives have become more careful not to overstate trading forecasts, given how difficult it is to predict business revenues.

See also  Job openings declined in May, a sign of continuing cooling

But changing expectations for the United States and the global economy have led to increased client activity at these banks.

“I still think there's uncertainty. You can't predict the future, and as a result, clients are having to sort of adjust their portfolios,” Jim DeMare, head of global markets at Bank of America, told Yahoo Finance.

“This leads to more business and good activity for us,” he added.

David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.

Click here for in-depth analysis of the latest stock market news and events that move stock prices.

Read the latest financial and business news from Yahoo Finance