Wall Street banks report gains in investment banking

Wall Street banks reported a healthier pipeline for deals and a jump in investment banking activity in quarterly earnings on Friday, but also cited some headwinds and reasons for caution.

The results by three major US banks kicked off the second-quarter earnings season.

Deal flow has been improving from a drought after the pandemic. Merger and acquisition volumes hit $1.6 trillion globally in the first half of the year, up 20% from a year earlier, Dealogic data showed. Equity capital market volumes climbed 10% during the same period.

Citigroup reported a 60% jump in investment banking revenue to $853 million. At JPMorgan, investment banking fees grew 50%, compared with a low base, but were higher than the company's earlier prediction of a 25% to 30% increase. At Wells Fargo, investment banking revenue surged 38% to $430 million.

Wells Fargo shares were down 6% at midday on Friday as the bank missed analysts' estimates for interest income. Citi shares were down 1.5% on investor worries about expenses and market share. JPMorgan shares were down 0.3% on some concern about costs and provisions.

Citi's chief financial officer, Mark Mason, told reporters on a call after the earnings that the pipeline of announced deals was looking strong, which would play out at the end of the year and in 2025.

"There are a number of factors that come into play, including the broader regulatory environment, including elections, including how the rate environment and inflation continues to evolve," Mason said. "But the important thing is we are well positioned as we look at announced deals."

"We are seeing some good momentum," he added.

The US is heading toward the Nov. 5 presidential election and the interest rate cycle could also affect the outlook.

JPM's CFO, Jeremy Barnum, said on a conference call that dialogue on M&A was "robust" but was still muted in terms of actual deals.

He noted that initial public offerings could have been expected to be higher, adding that equity market strength had been driven by a few stocks, while other areas in the market that would typically drive IPOs had been more muted, such as mid-cap technology.

Wells Fargo CFO Mike Santomassimo said on a call that the bank has seen good activity across the investment grade desk, capital markets and the leverage finance business.

In a report from Tuesday, analysts at credit rating agency Moody's said U.S. banks were expected to show significant improvements in some investment banking revenue sources after industry improvements in debt issuance and M&A, although IPOs were slightly lower than a year earlier.

Investment banks Goldman Sachs GS.N and Morgan Stanley MS.N are set to report quarterly results next week.

Goldman's earnings are expected to more than double versus the second quarter of 2023, when they dropped to a three-year low. Goldman will likely benefit from a revival in deals, combined with fewer writedowns for its consumer business.

Morgan Stanley's EPS is expected to climb 33%, lifted by rising activity in mergers, acquisitions and capital markets.