Heads of the largest U.S. lenders say their bankers have more deals lined up -- even after their latest earnings results showed strong growth, thanks to clients' confidence in carrying out big-ticket transactions.
Goldman Sachs' investment-banking fees jumped 55% from a year ago to $3.4 billion in the second quarter. That captured a 130% surge in equity underwriting, which includes initial public offerings.
Still, Goldman CEO David Solomon said the firm's backlog -- that is, deals waiting in the wings -- rose to the highest level in five years and the second-highest level on record.
Strategic mergers and acquisitions have been the largest driver of that work, he said, while management teams look to seize on a more relaxed regulatory environment around dealmaking.
At the same time, CEOs are thinking about how to position themselves as artificial intelligence reshapes business plans.
"This is an environment where people want scale advantage," Solomon told analysts on Tuesday. "CEOs are dreaming more of large-scale opportunity, because they think that they've got a multi-year window here where they can potentially execute on it."
Rival banks said they were seeing robust pipelines, too. Citigroup's investment-banking revenue rose 44% from a year ago to $1.5 billion in the second quarter, driven by equity- and debt-capital-markets work.
The firm under CEO Jane Fraser has been trying to improve its standing in investment banking, hiring experienced bankers from more successful rivals and aiming to win bigger assignments. She said there is much activity across energy and power tied to the artificial intelligence infrastructure build-out.
"The pipeline is very healthy. We're in a financial market that's sort of -- looking for reasons to buy," Fraser told analysts. "The central CEO question right now across sectors is, 'Do we invest for growth now, or are we preserving optionality?' AI is dominating a lot of the conversations."
JPMorgan Chase's finance chief, Jeremy Barnum, said on Tuesday that the bank's own pipeline was "quite robust" and that he felt as though "the high-profile nature of the activity this quarter, and just the generally robust environment is itself begetting more activity."
The market has been chock-full of big debuts. SpaceX went public last month as the largest-ever initial public offering. Some two-dozen banks, including Goldman, JPMorgan, and Citi, worked on the deal.
SK Hynix, the big South Korean memory-chip maker that went public on Monday, counted JPMorgan, Bank of America, Citi, and Goldman as its global coordinators. Citi was also among the banks that underwrote Cerebras, the artificial-intelligence chip maker.
Bank of America and Wells Fargo also benefited from a wave of dealmaking activity.
Bank of America said revenue from its capital-markets business soared 34% from a year ago to $8 billion because of higher trading revenue and investment banking fees.
Wells said revenue for its corporate and investment banking unit came to $5.4 billion for the quarter, up 16% from the year prior.
Mike Santomassimo, Wells Fargo's chief financial officer, echoed his competitors: "The pipeline is quite strong, and I think we see that now very consistently for a while now."
"The environment is very supportive of deals," Santomassimo said. "The markets are wide open both on the equity side and the debt side. I think the art of the possible in the M&A space is quite alive."
Challenges lie ahead.
Citi's Fraser cautioned on Tuesday that "we'll probably have the summer lull," and uncertainty tied to upcoming midterm elections in the U.S., "and the wildcard really is geopolitics."
The banks' results should bode well for Morgan Stanley, which is set to report second-quarter earnings on Wednesday morning. Analysts expect the bank to report that revenue rose 17% from a year ago, according to FactSet.
Morgan Stanley has recently worked on a slate of large deals, and it is a lead underwriter for sandwich shop Jersey Mike's planned IPO.
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