Wall Street sees glimmer of hope for investment banking revival

afr.com:

After more than a year in the dealmaking doldrums, Wall Street giants are finally seeing signs of life in their capital markets businesses.

Bank of America, Morgan Stanley, JPMorgan Chase and Citigroup all beat analysts’ expectations for equity underwriting revenue in the second quarter, with all but Citigroup earning more than they did a year earlier from that business. The biggest banks – again with the exception of Citigroup – also surpassed estimates for debt underwriting.

Wall Street giants are seeing signs of life after fees nosedived last year AP

“It feels as though things are getting better and the signs are encouraging,” Morgan Stanley chief financial officer Sharon Yeshaya said. The backlog is building and “it sets us up for a better 2024.”

The positive news, along with a surprise fixed-income trading gain at Bank of America and upbeat comments from Morgan Stanley executives, helped lift the shares of financial firms large and small, including PNC Financial Services Group, Bank of New York Mellon and Charles Schwab, which also reported results Tuesday. The KBW Bank Index climbed as much as 2.8% to its highest intraday level in three months.

Investment banking revenue has whipsawed in recent years. Fees from underwriting and dealmaking soared during the pandemic, fuelled by low rates and government economic stimulus, then nosedived last year after the Federal Reserve began hiking interest rates to combat persistent inflation.

At Morgan Stanley, the increase in debt underwriting revenue was primarily driven by higher investment-grade bond issuance, the New York-based bank said, while the equity underwriting increase was the result of more follow-on and convertible offerings.

Citigroup chief executive officer Jane