Wall Street banks see trading pick-up, even after record results

U.S. investment banks just reported a record quarter, helped by strong trading activity around the U.S. election and a recovery in deal flow at investment banks.

The traders of JPMorgan Chasefor example, have never had a better fourth quarter after seeing revenue increase 21% to $7 billion, while Goldman Sachs equities business generated $13.4 billion for the full year – also a record.

For Wall Street, it’s a welcome return to the type of environment traders and bankers sought after a quiet period in which the Federal Reserve raised rates as it battled inflation. With the Fed in easing mode and the election of Donald Trump in November, banks like JPMorgan, Goldman and Morgan Stanley easily exceeded expectations for the quarter.

But the great machinery that moves Wall Street is only getting bigger. Indeed, discouraged by regulatory uncertainty and rising borrowing costs, U.S. companies have mostly stayed on the sidelines in recent years when it comes to buying up 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 approval of mergers, banks are seeing a growing backlog in merger deals, according to David Solomon, CEO of Pick and Goldman.

Morgan Stanley’s deal book is “the largest in 5 to 10 years, maybe even longer,” Pick said Thursday.

Activity in capital markets, including the issuance of debt and equity securities, had already started to recover last year, increasing 25% from depressed 2023 levels, according to figures from Dealogic. But without normal levels of merger activity, the entire Wall Street ecosystem lacks a key driver of activity.

Multibillion-dollar acquisitions are at the “top of the waterfall” for investment banks like Morgan Stanley, Pick said, because they are high-margin deals that “have a multiplier effect overall.” of the organization.”

Indeed, they create the need for other types of transactions, such as massive loans, credit facilities or the issuance of shares, while generating millions of dollars of wealth for managers which must be managed professionally. .

“The last piece is what we’ve been waiting for, which is the merger and acquisition tickets,” Pick said, referring to the contracts governing merger transactions. “We’re excited to pass this on to the rest of investment banking.”

Another value creation engine for Wall Street that has been sluggish in recent years is the IPO market — which is also poised to recover, Solomon told an audience of investors and industry employees technology Wednesday.

“There has been a significant change in CEO confidence,” Solomon said earlier today. “There is a significant backlog from sponsors and an overall increased appetite for deal-making, supported by an improving regulatory environment.”

After a few lean years, this should be a profitable period for Wall Street traders and traders.