Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Pick, chief executive officer of Morgan Stanley, Marc Rowan, chief executive officer of Apollo Global Management LLC, and David Solomon, chief executive officer of Goldman Sachs Group Inc., during the Global Financial Leaders’ Investment Summit in Hong Kong, China, on Tuesday, Nov. 19, 2024.
Paul Yeung | Bloomberg | Getty Images
American investment banks just disclosed a record-smashing quarter, helped by surging trading activity around the U.S. election and a pickup in investment banking deal flow.
Traders at JPMorgan Chase, for instance, have never had a better fourth quarter after seeing revenue surge 21% to $7 billion, while Goldman Sachs’ equities business generated $13.4 billion for the full year — also a record.
For Wall Street, it was a welcome return to the type of environment craved by traders and bankers after a muted period when the Federal Reserve was raising rates as it grappled with inflation. Boosted by a Fed in easing mode and the election of Donald Trump in November, banks including JPMorgan, Goldman and Morgan Stanley easily topped expectations for the quarter.
But the grand machinery keeping Wall Street moving is just picking up steam. That’s because, deterred by regulatory uncertainty and higher borrowing costs, U.S. corporations have mostly sat on the sidelines in recent years when it came to buying competitors or selling themselves.
That’s about to change, according to Morgan Stanley CEO Ted Pick. Buoyed by confidence in the business environment, including hopes for lower corporate taxes and smoother approvals on mergers, banks are seeing growing backlogs of merger deals, according to Pick and Goldman CEO David Solomon.
Morgan Stanley’s deal pipeline is “the strongest it’s been in 5 to 10 years, maybe even longer,” Pick said Thursday.
‘Pounding the table’
Capital markets activity including debt and equity issuance had already begun recovering last year, rising 25% from the depressed levels of 2023, per Dealogic figures. But without normal levels of merger activity, the entire Wall Street ecosystem has been missing a key driver of activity.
Multibillion-dollar acquisitions sit at “the top of the waterfall” for investment banks like Morgan Stanley, Pick explained, because they are high-margin transactions that “have a multiplier effect through the whole organization.”
That’s because they create the need for other types of transactions, like massive loans, credit facilities or stock issuance, while generating millions of dollars in wealth for executives that needs to be managed professionally.
“The last piece is what we’ve been waiting for, which are M&A tickets,” Pick said, referring to the contracts governing merger deals. “We are excited about pushing that through to the rest of the investment bank.”
Results from Goldman on Wednesday spurred veteran Morgan Stanley banking analyst Betsy Graseck to raise her 2025 forecast for the bank’s earnings by 9%.
“We’re pounding the table on the capital markets rebound theme,” Graseck said in a note. “Expect more EPS beats throughout this year as the industry trading wallet grows and investment banking activity rebounds.”
IPO revival?
Another engine of value creation for Wall Street that has been slow in recent years is the IPO market — which is also set to pick up, Solomon told an audience of tech investors and employees Wednesday.
“There has been a meaningful shift in CEO confidence,” Solomon said earlier that day. “There is a significant backlog from sponsors and an overall increased appetite for deal-making supported by an improving regulatory backdrop.”
After a lean few years, it should make for a profitable time for Wall Street’s dealmakers and traders.
WATCH: Goldman Sachs tops estimates