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Wall Street is roaring back to life as big banks led by Goldman Sachs cash in on a rebound in dealmaking.
The financial giant headed by CEO David Solomon reported a 45% surge in quarterly profits on Tuesday, leading the pack in the banking sector as rivals Bank of America and Citigroup also reported better than expected results.
IPOs and mergers are still just a trickle compared to the post-pandemic boom of 2021 when blank-check companies fueled a dealmaking bonanza industrywide. Still, banking executives said the Fed’s move last month to slash interest rates by half a percentage point bodes well for business in the months ahead.
“We see significant pent-up demand from our clients,” Solomon said on a conference call. “The beginning of the rate cut cycle has renewed optimism for a soft landing.”
Goldman pointed to a 20% jump in investment banking fees year-on-year to $1.87 billion — driving third-quarter profits of $2.99 billion, or $8.40 per share, up from $2.06 billion, or $5.47 per share, a year earlier.
Revenues rose 7% to $12.7 billion, the bank said.
The results are well above estimates complied by the London Stock Exchange Group that predicted earnings per share of $6.89 a share and revenues of $11.8 billion.
Goldman has tried to refocus on its core business of investment banking and trading after a botched foray into the world of consumer banking, with executives on Tuesday disclosing a $415 million pretax hit in the third quarter from that unit.
Bank of America posted a 12% drop in net income to $6.9 billion, or 81 cents a share, due to losses on bad loans and higher expenses. Still, CEO Brian Moynihan called the earnings “solid,” citing 18% growth in investment banking, as well as robust asset management fees, and sales and trading revenue.
“We also continue to benefit from our investments in the business,” Moynihan said in a statement.
Meanwhile, Citigroup, the third biggest lender in the US, posted a smaller-than-expected drop in profit for the third quarter. Investment banking was a bright spot for the second straight quarter, as revenue jumped 31% to $934 million.
The bank headed by CEO Jane Fraser said its net income dropped to $3.2 billion, or $1.51 per share, compared with $3.5 billion, or $1.63 per share, a year earlier.
That was higher than Wall Street analysts’ average expectations of $1.31 per share, according to estimates compiled by LSEG.
The better-than-expected results follow surprisingly strong earnings reported by crosstown rival JP Morgan on Thursday.
The results also hint at improved investor and client confidence about the outlook for the US economy ahead of the Nov. 5 presidential election.
The surge in investment banking activity comes after two years of higher interest rates made it more expensive to borrow, leading to a slowdown in major mergers and acquisitions on Wall Street.
Just last month the Federal Reserve slashed its key lending rate by half a percentage point to 4.75%-5%.
Goldman is pulling out of its credit card venture with automaker General Motors, which has signed a deal with Barclays.
JP Morgan is also in talks to replace the firm as the chosen credit card partner of global tech giant Apple.
The uptick in M&A activity should mean a string of bigger pay checks for Wall Streeters, according to local officials.
Last week, a report by New York State Comptroller Thomas DiNapoli predicted that Wall Street bonuses could expand by more than 7% as a result of the increased flurry of dealmaking.
The bumper pay packets help drive economic growth in New York City and the state, with the finance industry handing over $5.1 billion in tax revenues for the fiscal year of 2024.
