Weaker trade
US banks make money from mergers
01/19/2022, 7:24 p.m
The heavyweights in the US banking sector have disclosed their balance sheets. IPOs and takeovers turned out to be lucrative deals. At the same time, however, calmer financial markets resulted in sluggish trading results.
Strong M&A advisory revenues have left coffers full at major US banks. The reporting season of the top institutes on the other side of the Atlantic ended with the business figures of the US investment bank Morgan Stanley and the financial giant Bank of America. In doing so, they left a mixed picture: while investment banking shone again thanks to merger fever, trading business at many banks was weakening. In addition, the costs increased – especially for the staff. Fierce competition has broken out for top talent for important bank functions.
MorganStanley reported a 10 percent increase in fourth-quarter earnings to $3.6 billion thanks to a thriving consulting business. This was above analyst estimates. “2021 was an excellent year for our company,” said bank boss James Gorman. Revenue climbed 7 percent to $14.5 billion in the fourth quarter. Like rivals Goldman Sachs and JPMorgan, Morgan Stanley has benefited from ongoing merger fever. There were also a large number of IPOs and transactions with listed shell companies.
Morgan Stanley advised on 420 transactions last year. In terms of consulting fees, the institute ranks third in the so-called league tables behind Goldman Sachs and JP Morgan. By contrast, trading revenues fell 26 percent in the fourth quarter, while bond trading revenues plummeted 31 percent. In the first year of Corona, strong fluctuations on the stock exchanges supported the trading business, as well as the billions in cash injections from the US Federal Reserve. But recently the waters on the financial markets have calmed down again, and the Fed has also scaled back its large-scale bond purchases.
At the rival Bank of America the net profit in the fourth quarter even increased by 30 percent to 6.8 billion dollars. Earnings rose 10 percent to $22.1 billion. The bank also benefited from stronger credit growth and a recovery in consumer spending on credit and debit cards. “Credit growth is very consistent. It’s broad-based,” said CFO Alastair Borthwick. It is hard to believe that this trend will now be interrupted. Equity earnings rose 3 percent, while bond trading revenue fell 10 percent.
Weak activity in trading also weighed on the investment bank Goldman Sachs, which had already presented its numbers on Tuesday. Wall Street Bank’s net income fell 13 percent to $3.8 billion in the fourth quarter. Investment banking was once again the highlight. Revenue from this shot up 45 percent to $3.8 billion.
How Deutsche Bank fared should become clear on January 27th. Then the largest German financial institution publishes its figures for the fourth quarter and full year. In the third quarter, the bank earned more than experts had given it credit for, despite additional costs for the ongoing restructuring of the group and losses in important investment banking.