Ahead of the major Wall Street banks reporting their first-quarter earnings, Moody’s Investors Service says investment banking revenue is likely to be weak once again.

In a new report, the rating agency said that when the U.S.-based global investment banks — Bank of America Corp., Citigroup Inc., Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. — start reporting earnings on Friday they will reveal a fifth straight quarter of lower revenues from investment banking, amid slumping new issue and merger-and-acquisition activity.

“The broad reductions of issuance and completed deal volume will likely mute the banks’ results even compared with the markedly lower revenue in Q1 2022 following exceptional results in 2021,” it said.

In particular, equity issuance was “subdued throughout 2022 and into 2023 as equity market volatility increased and valuations declined,” Moody’s said.

“The first quarter was the fifth consecutive quarter of extremely low equity offerings as well as the lowest 12-month issuance volume in the past decade,” it noted. “M&A transactions, which generally reflect corporate confidence and funding costs, also declined in Q1 from a solid Q1 2022.”

At the same time, the Wall Street banks’ sales and trading revenue “will likely be solid,” Moody’s said, adding that it expects revenues in this segment to come in “roughly in line” with the first quarter of 2022.

“Secondary trading volume in equities, credit ETFs, and options and futures on fixed-income, currencies and commodities (FICC) products were very strong during the first quarter, but still-tight financial conditions increase the challenge of risk-managing customer flows,” it said.

“Tighter financial conditions can lead to a deterioration in market liquidity, which can inhibit client activity and increase the risk of loss if trading inventory is not properly managed,” it said.

Increased volatility often sparks client portfolio rebalancing activity that benefits the major trading firms; however, if volatility gets too extreme, and tips over from “good” volatility to “bad” volatility, that activity can dry up, Moody’s said.

“Volatility and spreads are positively correlated and can boost revenue for banks that are able to navigate the markets and provide liquidity,” it said.