Wall Street’s biggest banks reported rising investment-banking fees in the third quarter fueled by more deals and as companies increasingly issued debt, and said that their pipeline of new activity looked healthy – although some areas are slower to return.
Bankers are now more optimistic as they anticipate rate cuts over the next few months by the Federal Reserve and central banks across the world that would help grow the pipeline of deals in the offing as borrowing becomes cheaper.
Easing interest rates, strong stock markets, and increased US expectations of a soft economic landing have added to dealmakers’ confidence for a strong finish to the year.
Goldman Sachs said investment banking fees rose 20%, driven by leveraged finance and investment-grade activity, and equity underwriting. The bank’s shares were up 3% premarket.
Goldman said its investment banking fees backlog increased compared with both the end of the second quarter of 2024 and the end of 2023.
“We are seeing increased client demand for committed acquisition financing which we expect to continue on the back of increasing M&A activity,” Goldman’s Chief Financial Officer Denis Coleman said on a conference call with analysts.
Private equity players were getting more active, Goldman’s CEO David Solomon said, although were lagging expectations.
“Sponsors (private equity firms) are slower to deploy (capital) than we expected, but we do see more activity and it will continue to accelerate over the next 6 to 24 months,” said Solomon. Solomon also said that there had been a lack of M&A by large companies.
BofA’s investment banking fees jumped 18% to $1.4 billion, compared with a year earlier, bolstered by a rebound in activity in recent months as improving confidence spurred clients to issue debt and equity.
Bank of America’s Chief Financial Officer Alastair Borthwick said on a media conference call that for investment banking, “we feel good about our pipeline.”
At Citi, investment banking was a bright spot for the second straight quarter, with revenue up 31% driven largely by investment grade debt issuance.
This results followed a strong showing by JPMorgan on Friday, which posted a 31% surge in investment-banking fees, doubling guidance of 15% in September. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast.
Wells Fargo said its non-interest income increased 12%, driven partly helped by higher investment banking fees and strong trading revenue.
“We’ve certainly seen a lot of activity in the investment grade debt capital markets,” Michael Santomassimo, Wells Fargo CFO, told a media briefing on Friday.
“We’ve seen some activity in the leveraged finance business as well, and there’s a lot of activity or conversation on the M&A side, but, it’ll take some time for that likely to play out.”
Mergers and acquisitions announced worldwide in 2024 totaled $909 billion as of Sept. 30 in the third quarter, up 22% from $744.6 billion from same quarter a year earlier, Dealogic data showed.
Candy giant Mars’ $36 billion takeover of Cheez-It maker Kellanova and Blackstone (NYSE:BX)’s $16 billion buyout of Australian data center operator AirTrunk ranked as the largest deals of the quarter.
Citi served as a financial advisor to Mars, while J.P. Morgan and Citi provided Mars with financing. Goldman Sachs is a financial advisor to Kellanova.
U.S. investment-grade bond issuance so far this year at $1.3 trillion is 29% higher than the volumes in the year earlier period, according to Informa Global Markets data.
“With the rates now beginning to decline as the Fed easing cycle gets underway, we like the biggest banks that have a blend of businesses that benefit from both fee and non-fee income,” said Jon Curran, head of investment grade credit at Principal Asset Management, ahead of Tuesday’s slew of earnings.
Despite the optimism, dealmakers will be keenly watching the U.S. elections and geopolitical situation as they add to regulatory and other uncertainties.
“In light of the positive momentum throughout the year, we’re optimistic about our pipeline, but the M&A regulatory environment and geopolitical situation are continued sources of uncertainty,” JP Morgan’s finance chief Jeremy Barnum said.
