Green shoots return to Wall Street. This time, bosses are more cautious about saying so. The fourth quarter investment banking revenues of five of the largest banks rose 3.5% due to stock and bond underwriting rather than mergers and acquisitions advice.
Fees rose 16% at Citigroup (C), 13% at JPMorgan Chase (JPM), 8% at Bank of America (BAC), and 5% at Morgan Stanley. Only Goldman Sachs (GS) fell 12%, while its sales rose 6% from the third quarter.
It was a relief after a tough year. In analyst conference calls, executives were careful about describing the revived investment banking activity. After a deal slump last year, some CEOs had to back off "green shoots" rhetoric.
Goldman CEO David Solomon was "pretty optimistic" on Tuesday but maintained a "cautious view." Morgan Stanley CEO Ted Pick called the year "constructive". BofA CEO Brian Moynihan said there was a "full pipeline" of mergers, but "the question is sort of when is the clarity."
A Wall Street comeback in 2024 matters. If trade results continue to decline and lending revenue declines as the Federal Reserve reduces interest rates, banks will need to rely substantially on investment banking this year.
cut rates will cut deposit costs and increase borrowing demand, but banks may be unable to charge as much interest on new loans. Higher rates boosted 2023 profitability for the major banks.
Even JPMorgan, which posted an industry record $50 billion in net profits last year, cautioned that Fed cutbacks will lower its lending revenue each quarter in 2024.
Many things must go right for investment banking to grow in 2024. The economy must grow, and business executives must be more optimistic. Wall Street expects the spark to halt the Fed's relentless monetary tightening campaign in March.