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Key Takeaways From Executive Conference About Capital Markets
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Many bank CEOs and other top executives took the stage separately over the last two days at Goldman Sachs’ U.S. Financial Services Conference. They provided colors as to how capital markets businesses (trading and investment banking) are performing in the ongoing quarter and what’s in store in the near future.
Before we start discussing individual bank outlooks – JPMorgan (JPM - Free Report) , Goldman Sachs (GS - Free Report) , Citigroup (C - Free Report) and Bank of America (BAC - Free Report) – for the fourth quarter of 2023, let’s understand how the operating backdrop has been for the capital markets businesses so far.
Starting with investment banking (IB), both global M&A activity and initial public offerings (IPOs) have declined since last year following the Russia-Ukraine conflict and the Federal Reserve's ultra-aggressive rate hikes to control “sticky” inflation. This had a severe adverse impact on banks’ non-interest income.
On the other hand, trading (though down from the record levels of 2020-2021), driven by heightened volatility and client activity, continued to perform decently.
The situation seems to be turning around for IB business in the current quarter. Bank executives at the conference noted that global deal-making conditions have started to improve, with some anticipating a better outlook for strategic M&As in 2024. The major factor driving a better picture is the stabilizing interest rate environment.
There have been quite a few IPOs during the ongoing quarter, including the listing of Arm Holdings, and this seems to have opened the doors for more IPOs next year. On the deal-making front, green shoots are visible across many industries, and there have been several strategic merger/acquisition announcements of late. All bank executives acknowledged that there is an increased appetite for strategic M&As, and ongoing dialogs indicate a stronger pipeline going forward.
Q4 Trends & Updates
Now, coming to fourth-quarter 2023 IB and trading outlook, let’s begin with the largest bank in the United States – JPMorgan. Marianne Lake, Co-CEO of the company’s Consumer and Community Banking business, said that markets revenues are expected to be “flattish” on a year-over-year basis. IB fees are projected to witness “pretty healthy” year-over-year growth and a sequential single-digit rise.
Bank of America CEO Brian Moynihan noted “The M&A deals are coming a little faster.” The company will outperform the industry on IB fees in the quarter. The bank expects to earn approximately $1 billion in IB fees, reflecting a low single-digit decline on a year-over-year basis. Moynihan added that the industry-wide IB fee pool is expected to decline 10-15%. Additionally, trading revenues are projected to be up in the low single-digit range year over year.
Another major global bank, Citigroup, expects IB revenues to rise in the high single-digit range sequentially. Mark Mason, Chief Financial Officer, said “We have seen continued momentum, which is good, particularly in areas like debt capital markets and issuance activity there.” Further, while discussing markets business, he noted that client activity has been somewhat subdued “across a broad set of asset classes.” Thus, markets revenues are anticipated to be down 15-20% from the third quarter 2023 level.
Global investment bank, Goldman’s Chief Financial Officer Denis Coleman echoed similar views. He said, “In investment banking, no surprise, it's sort of trending below trend at the moment. I think the franchise is very healthy. Our market share has remained very strong, number one, and M&A number one in Equity, Number 2 high yield, but the level activity more muted.” He stated a lot of clients had an appetite and interest in "doing something strategic" but are holding themselves back because of macroeconomic ambiguity. Trading revenues in the current quarter are expected to be almost flat year over year at GS.
Conclusion
The outlook for capital markets businesses seems to be optimistic. But challenges persist. While global M&A activities are gaining traction, high rates for longer periods and a tougher regulatory environment are expected to make a fast rebound challenging. Likewise, trading income depends on the level of volatility and client activity.
Image: Bigstock
Key Takeaways From Executive Conference About Capital Markets
Many bank CEOs and other top executives took the stage separately over the last two days at Goldman Sachs’ U.S. Financial Services Conference. They provided colors as to how capital markets businesses (trading and investment banking) are performing in the ongoing quarter and what’s in store in the near future.
Before we start discussing individual bank outlooks – JPMorgan (JPM - Free Report) , Goldman Sachs (GS - Free Report) , Citigroup (C - Free Report) and Bank of America (BAC - Free Report) – for the fourth quarter of 2023, let’s understand how the operating backdrop has been for the capital markets businesses so far.
Starting with investment banking (IB), both global M&A activity and initial public offerings (IPOs) have declined since last year following the Russia-Ukraine conflict and the Federal Reserve's ultra-aggressive rate hikes to control “sticky” inflation. This had a severe adverse impact on banks’ non-interest income.
On the other hand, trading (though down from the record levels of 2020-2021), driven by heightened volatility and client activity, continued to perform decently.
The situation seems to be turning around for IB business in the current quarter. Bank executives at the conference noted that global deal-making conditions have started to improve, with some anticipating a better outlook for strategic M&As in 2024. The major factor driving a better picture is the stabilizing interest rate environment.
There have been quite a few IPOs during the ongoing quarter, including the listing of Arm Holdings, and this seems to have opened the doors for more IPOs next year. On the deal-making front, green shoots are visible across many industries, and there have been several strategic merger/acquisition announcements of late. All bank executives acknowledged that there is an increased appetite for strategic M&As, and ongoing dialogs indicate a stronger pipeline going forward.
Q4 Trends & Updates
Now, coming to fourth-quarter 2023 IB and trading outlook, let’s begin with the largest bank in the United States – JPMorgan. Marianne Lake, Co-CEO of the company’s Consumer and Community Banking business, said that markets revenues are expected to be “flattish” on a year-over-year basis. IB fees are projected to witness “pretty healthy” year-over-year growth and a sequential single-digit rise.
Bank of America CEO Brian Moynihan noted “The M&A deals are coming a little faster.” The company will outperform the industry on IB fees in the quarter. The bank expects to earn approximately $1 billion in IB fees, reflecting a low single-digit decline on a year-over-year basis. Moynihan added that the industry-wide IB fee pool is expected to decline 10-15%. Additionally, trading revenues are projected to be up in the low single-digit range year over year.
Another major global bank, Citigroup, expects IB revenues to rise in the high single-digit range sequentially. Mark Mason, Chief Financial Officer, said “We have seen continued momentum, which is good, particularly in areas like debt capital markets and issuance activity there.” Further, while discussing markets business, he noted that client activity has been somewhat subdued “across a broad set of asset classes.” Thus, markets revenues are anticipated to be down 15-20% from the third quarter 2023 level.
Global investment bank, Goldman’s Chief Financial Officer Denis Coleman echoed similar views. He said, “In investment banking, no surprise, it's sort of trending below trend at the moment. I think the franchise is very healthy. Our market share has remained very strong, number one, and M&A number one in Equity, Number 2 high yield, but the level activity more muted.” He stated a lot of clients had an appetite and interest in "doing something strategic" but are holding themselves back because of macroeconomic ambiguity. Trading revenues in the current quarter are expected to be almost flat year over year at GS.
Conclusion
The outlook for capital markets businesses seems to be optimistic. But challenges persist. While global M&A activities are gaining traction, high rates for longer periods and a tougher regulatory environment are expected to make a fast rebound challenging. Likewise, trading income depends on the level of volatility and client activity.
Currently, JPM sports a Zacks Rank #1 (Strong Buy), while BAC, C and GS carry a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.