From left: Jonathan Gray, president and chief operating officer of Blackstone, Ron O’Hanley, chief executive officer of State Street Corporation, Ted Pick, chief executive officer of Morgan Stanley, and Mark Mark, chief executive officer of Apollo Global Management. Rowan LLC and Goldman Sachs Group CEO David Solomon at the Global Financial Leaders Investment Summit in Hong Kong, China, Tuesday, November 19, 2024.
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U.S. investment banks just reported a record quarter, helped by a surge in trading activity around the U.S. election and a rebound in investment banking deal flows.
Traders at JPMorgan Chase & Co., for example, have never had a stronger fourth quarter, with sales up 21% to $7 billion, while Goldman Sachs’ equities business posted a full-year increase of $13.4 billion. This was also a record.
For Wall Street, it was a welcome return to the kind of environment that traders and bankers were yearning for after a downturn when the Federal Reserve raised interest rates to fight inflation. Buoyed by the Fed’s easing mode and the election of President Donald Trump in November, banks such as JPMorgan, Goldman and Morgan Stanley easily beat expectations for the quarter.
But the big institutions that run Wall Street are only going from strength to strength. That’s because U.S. companies have largely stayed on the sidelines in recent years when it comes to acquiring competitors or selling themselves, hampered by regulatory uncertainty and rising borrowing costs.
That’s about to change, according to Morgan Stanley CEO Ted Pick. Pick and Goldman CEO David Solomon said banks are seeing a growing backlog of mergers, buoyed by confidence in the business environment, including expectations for lower corporate taxes and smoother merger approvals. It is said that there is.
Pick said Thursday that Morgan Stanley’s deal pipeline is “the strongest it’s been in five to 10 years, maybe even stronger.”
Capital market activity, including bond and equity issuance, has already begun to recover last year, rising 25% from sluggish levels in 2023, according to Dealogic statistics. But without normal levels of merger activity, the entire Wall Street ecosystem is missing a major driver of activity.
Pick said multibillion-dollar acquisitions are the “top of the waterfall” for investment banks like Morgan Stanley because they are high-margin deals that “create synergies across the organization.” Explained.
That’s because while it creates millions of dollars of wealth for management teams that must be professionally managed, it also creates the need for other types of transactions, such as large loans, credit extensions, and stock issues.
“The final piece is what we’ve been waiting for, and that’s the M&A ticket,” Pick said, referring to the agreement governing the merger transaction. “We are excited to be able to promote this to other investment banks as well.”
Another driver of value creation on Wall Street that has slumped in recent years is the IPO market, which is also expected to recover, Solomon told an audience of tech investors and employees Wednesday.
“There has been a meaningful shift in CEO confidence,” Solomon said earlier in the day. “There is a significant backlog of orders from sponsors and overall appetite for closing deals is increasing, supported by an improved regulatory backdrop.”
If things go well for a few years, it should be a profitable period for Wall Street dealmakers and traders.
