Wall Street giants are forecasting deep declines in investment-banking fees for the current quarter with investors still spooked by inflation, Federal Reserve interest-rate hikes and the potential for a recession.
Citigroup Inc. Chief Financial Officer Mark Mason warned the fees his bank collects from deal making and capital markets origination are likely to plummet 50%, in line with the broader slowdown hitting Wall Street. That mirrors earlier comments from JPMorgan Chase & Co., which said investment-banking fees may fall by half as clients stay on the sidelines.
“We won’t look a lot different than the market because the financing side of it is what’s hit and that’s our strongest suit,” Bank of America Corp. Chief Executive Officer Brian Moynihan said Monday. “The pipelines are very full. And there is a lot of activity that has been held in abeyance waiting for some stability in the market to push it through.”
Global dealmaking has been slow this year and big market swings spurred by recession fears, soaring inflation and global geopolitical turmoil have stymied capital markets. The industrywide slump in revenue has already prompted Goldman Sachs Group Inc. to embark on its biggest round of jobs cuts since the start of the pandemic as it plans to eliminate several hundred roles starting this month.
“Investment banking has remained muted through the summer,” Andy Saperstein, co-president of Morgan Stanley, said at the conference Tuesday. “At some point, that will change. Markets will settle down and clients will transact, but that’s not imminent. Sales and trading clients are engaged. We’ve seen decent activity continue into the third quarter.”
Indeed, the volatility that’s hindering dealmaking has been a boon for trading desks. JPMorgan expects markets revenue to increase 5% for the same period, President Daniel Pinto said Tuesday. Macro businesses are boosting fixed-income trading results while equity markets are trending down against a third-quarter record of $2.6 billion a year ago.
At Bank of America, trading revenue typically falls as much as 9% or 10% between the second and third quarters of any given year. This quarter’s results should fare a bit better than that and likely only drop by a percentage in the low-single digits compared to the second quarter, Moynihan said.
At Citigroup, Mason warned that a slump in revenue from trading spread products will offset good performance it’s seen from trading foreign exchange and rates instruments. Equities trading, meanwhile, should be in line with pre-pandemic levels. Taken together, total trading revenue is likely to drop by a percentage in the mid-to-high single digits compared to a year ago, he said.
Pinto, who has been sole president of JPMorgan for almost a year and continues to oversee the corporate and investment bank, also touched on headcount. The potential for layoffs has been a major point of focus across Wall Street in recent months, punctuated by the news Monday that rival Goldman Sachs Group Inc. plans to eliminate several hundred jobs starting this month.
“You need to be very careful when you have a bit of a downturn to start cutting bankers here and there because you will hurt the possibility for growth going forward,” Pinto said. “The banking business has a big component of variable compensation, so therefore you can adjust not just letting people go, you can adjust by reducing comp.”
This article was provided by Bloomberg News.