Wall Street delivered stronger than expected capital markets results for the fourth quarter, setting the stage for a solid 2025, says Morningstar DBRS Inc.
In a report published Friday, the rating agency noted that the large Wall Street banks — JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley — beat expectations for their capital markets businesses in their latest quarterly earnings, due to still-strong trading and a rebound in investment banking.
For the latest quarter, the banks’ aggregate net revenues were up 14% on a year-over-year basis, and are now 37% higher than their pre-pandemic levels from 2019, DBRS reported.
On average, net revenues from investment banking rose 35% year over year, reflecting underlying strength, “particularly in equity underwriting, where higher equity markets supported strong follow-on and IPO issuance,” the report noted.
Similarly, net revenues from the banks’ sales and trading businesses were up strongly, rising 28% year over year on the equity side, and 27% in fixed income.
Equity revenues were supported by “strength in cash products and higher average balances in prime brokerage,” DBRS said, while fixed-income revenues were driven by strength in credit products and currencies.
For each of the banks, “net revenues were at or close to record-setting levels,” DBRS noted.
Looking ahead, investment banking is expected to remain strong in 2025 amid growing economic optimism, the report said.
“Indeed, backlogs improved sequentially and remain robust, particularly in [mergers and acquisitions], where pipelines have reached their highest level in nearly a decade,” DBRS said.
“As always, trading revenues are a wildcard, but the potential for follow-on trading opportunities resulting from increased investment banking activity would likely benefit results,” it added.