Written by Tatiana Bautzer and Saeed Azhar
NEW YORK (Reuters) – Wall Street executives are finally starting to see signs of a broader resurgence in investment banking, but they’re not celebrating too loudly just yet.
The investment banking division of the largest U.S. bank posted solid growth in the first quarter, reporting sharp increases in revenue and fees. Executives said capital markets led the recovery.
Morgan Stanley’s new CEO, Ted Pick, told analysts on a conference call after his first quarter that “we have strong backlog and momentum across all parts of our company.” . “The pipeline is healthy, but against a backdrop of economic and geopolitical uncertainty.”
Morgan Stanley’s first-quarter investment banking revenue rose 16% to $7 billion, the company said Tuesday, sending its stock up more than 3%.
At Bank of America, fees from investment banking rose 35% to $1.6 billion, but the stock price fell more than 4% as the bank set aside more funds to cover distressed loans.
“We are pleased to see improvements in investment banking,” Alastair Borthwick, BofA’s head of finance, told reporters. He cited efforts to deepen its presence in the middle market and foster cooperation between corporate and commercial bankers.
“It looks like the rising tide is here and lifting all boats in the capital markets,” said David Wagner, portfolio manager at Aptus Capital Advisors, adding that Morgan Stanley’s performance was “excellent.”
The results reflected strong performance from Goldman Sachs, JPMorgan Chase & Co., and Citigroup. Executives cited the resumption of some activities, but were also quick to point out risks such as interest rate uncertainty, escalating geopolitical conflicts and the U.S. presidential election.
“We have said previously that historically low activity levels will not last forever,” Goldman CEO David Solomon told investors on a conference call Monday. “CEOs need to make strategic decisions for their companies, companies of all sizes need to raise capital, and financial sponsors need to make deals that benefit investors.”
Goldman shares rose 3% after earnings rose 28%, beating analysts’ expectations.
Equity capital markets have been a bright spot in recent months, with several high-profile initial public offerings (IPOs) following, and growing optimism that more activity will follow.
“We remain cautiously optimistic that the IPO market could cautiously reopen in the second quarter,” Citigroup CEO Jane Fraser told analysts on Friday. said.
Citi’s investment banking fees rose 35% in the first quarter due to debt and equity capital markets. However, Fraser said mergers and acquisitions (M&A) remained slow.
“Business sentiment is very good, especially in the US, and customer balance sheets around the world are very strong,” he said. Still, he added, markets had been “too conscientious” in pricing in risk factors such as geopolitical conflicts.
Citi has hired Biswas Raghavan, former co-head of investment banking at JPMorgan, who will be tasked with growing the bank’s revenue when he joins the firm later this year.
At JPMorgan, Chief Financial Officer Jeremy Burnham also sounded cautious, even though the investment banking division’s revenue rose 27% to $2 billion.
“We’re encouraged by the positive momentum we’ve seen in the M&A announced this quarter, but it remains to be seen whether that will continue,” Burnham told analysts on a conference call Friday. “And the advisory business continues to face structural headwinds from the regulatory environment.”
Morgan Stanley’s Pick is more optimistic than other CEOs about the impact of geopolitical risks, saying global conflicts could even create incentives for international trade if they impact supply chains. said.
“We are in the early stages of a multi-year M&A cycle,” Morgan Stanley’s Pick said, noting that investment banking and capital markets are in the early to mid-cycle. “We should continue to see all kinds of underwriting activity…we feel good about that.” Fraser said the large M&A announcements across multiple industries are a sign of recent increased confidence from CEOs and boards. and that it will support capital markets.
Goldman’s Solomon expects private equity firms, or financial sponsors, to become more involved in deals to start returning capital to investors.
Meanwhile, Fraser noted that financial sponsors have $3 trillion that they need to deploy.
Citigroup stock has risen nearly 11% so far this year, outpacing peers such as JPMorgan and Bank of America, which have risen 6% and 3%, respectively. Goldman shares rose 3%, compared with a 3% decline in Morgan Stanley. The S&P 500 Bank Index rose 6%.
(Reporting by Tatyana Bautzer and Saeed Azhar in New York; Additional reporting by Nupur Anand; Editing by Ranan Nguyen and Nick Zieminski)
