The resurgence of investment banking has significantly bolstered bank earnings in 2024, following a turbulent period fraught with challenges such as geopolitical conflicts, market volatility, supply-chain bottlenecks, rising inflation, higher interest rates, and evolving financial regulations. These issues had stymied mergers and acquisitions (M&A) as well as equity and debt capital market deals. However, the current landscape is marked by a renewed vigor in dealmaking activities and a positive economic outlook, igniting a robust recovery in investment banking revenues.
Surge in Investment Banking Revenues
The second quarter (Q2) of 2024 witnessed a remarkable 40% year-over-year increase in fees from the five largest U.S. investment banks—JPMorgan Chase, Bank of America (BofA), Citigroup, Morgan Stanley, and Goldman Sachs. These institutions collectively earned $8.2 billion, showcasing the sector’s resilience and newfound strength. Citigroup, JPMorgan, and Wells Fargo registered substantial increases in their investment banking revenues, recording 60%, 46%, and 38% growth, respectively. Notably, Goldman Sachs also displayed a significant 21% growth, albeit it did not surpass its first-quarter figures.
Wells Fargo CEO Charles Scharf emphasized the role of fee-based revenues in offsetting the decline in net interest income. He pointed out the strong performance in investment advisory, trading, and investment banking fees. Similarly, Bank of America attributed its 1% annual revenue growth to $25.4 billion in Q2 primarily to growth in investment banking fees and higher sales and trading revenues.
Outside the top five lenders, Lazard demonstrated a robust recovery with a 17% increase in revenue from its financial-advisory business. This led to net revenue growth of 38% and a record $855 million in the first half of the year. The revival in M&A activities, particularly in North America, further underscores the resurgence.
Overcoming the Challenges of 2023
The previous year, 2023, proved to be challenging for investment banks. Global issues resulted in a 20% decrease in global investment banking revenue during the first three quarters of 2023, according to Acuity Knowledge Partners. In response to these challenges, banks adopted new operating models, technologies, and cost-containment strategies to stay competitive and increase productivity.
These adjustments seem to have paid off. Moody’s Ratings anticipated stronger investment banking results due to growth in debt underwriting, M&A activities, and higher trading volumes. Debt issuance volumes, especially high-yield debt, saw significant increases driven by tighter credit spreads, clearer monetary policy, and a better-than-expected economic outlook.
The Financial Times noted a 50% surge in debt underwriting revenues at the top five banks. Corporate borrowers were eager to raise new funds or refinance existing debt amid stabilizing borrowing costs and renewed confidence in the economic outlook. This environment has proven conducive to investment banking’s operational rebound.
Sectoral Trends and Future Outlook
The investment banking sector is experiencing a wave of renewed M&A activity, with global deal volumes hitting $1.6 trillion in the first half of 2024—a 20% increase from the previous year. However, these figures are still shy of the frenzied volumes witnessed during 2021 and 2022. JPMorgan Chase’s CFO Jeremy Barnum acknowledged this robust yet muted deal activity, particularly in the IPO market, which has underperformed in sectors like mid-cap technology.
Despite these nuances, banking leaders are optimistic about the future. Goldman Sachs’ CEO David Solomon and Morgan Stanley’s CFO Sharon Yeshaya both expressed confidence in the early stages of a capital markets and M&A recovery. They predict a multi-year investment banking-led cycle. This sentiment is echoed by JPMorgan’s co-CEOs of the Commercial and Investment Bank, Jennifer Piepszak and Troy Rohrbaugh, who remain cautiously optimistic as they head into the latter half of the year.
Citigroup’s CFO Mark Mason highlighted a strong pipeline of announced deals, expected to materialize towards the end of 2024 and into 2025. These prospects hinge on regulatory environments, elections, and economic variables such as interest rates and inflation. Acuity’s “The Dealmakers Insight – Investment Banking Survey 2024” projected significant or marginal revenue growth, driven by M&A activities, debt-capital markets, equity-capital markets, and private-capital advisory and placements.
Strategic Focus and Key Sectors
In 2024, the revival of investment banking has significantly improved bank earnings after a challenging period. This resurgence follows a series of difficulties that included geopolitical conflicts, market instability, supply-chain disruptions, rising inflation, higher interest rates, and changing financial regulations. These issues had previously hindered mergers and acquisitions (M&A) as well as equity and debt capital market activities.
Despite these setbacks, the investment banking sector is now experiencing renewed energy in dealmaking and a promising economic outlook. These positive changes are driving a substantial recovery in investment banking revenues. Banks are once again thriving as they navigate the complexities of the modern financial landscape.
This upturn marks a stark contrast to previous years when uncertainties led to a slowdown in major financial transactions. Today, with improved economic conditions and a clearer regulatory environment, investment banking activities are gaining momentum. Analysts observe that the renewed confidence and strategic opportunities are propelling banks forward, signifying a robust and sustainable revival in the sector.
Overall, the 2024 resurgence in investment banking underscores the sector’s resilience and adaptability, positioning it for continued growth amidst evolving global circumstances.
