Goldman Sachs reported investment banking revenue jumped 42 per cent in the third quarter.Brendan McDermid/Reuters
Top U.S. bankers predicted business would continue to boom as equity markets surged over the last quarter and the economy and consumer spending held up despite sweeping tariffs, but some warned asset prices may be unsustainably high.
Goldman Sachs’ GS-N investment banking revenue jumped 42 per cent in the third quarter, while rival JPMorgan Chase’s JPM-N investment banking fees climbed 16 per cent, the banks reported on Tuesday. Wells Fargo WFC-N and Citigroup C-N also put in solid IB performances.
Consumer finances remain healthy, although executives were monitoring for any deterioration as labor market data weaken.
“The macro environment reflects the global economy that’s proved more resilient than many anticipated. The U.S. continues to be a pacesetter, driven by consistent consumer spending, as well as tech investments,” Citigroup CEO Jane Fraser said during a conference call. “That said, there are pockets of valuation frothiness in the market.”
Bay Street reaps the rewards from a deluge of takeovers, stock sales and debt deals
Wells Fargo Chief Financial Officer Mike Santomassimo told journalists the deals pipeline looked good. His counterpart at JPMorgan, Jeremy Barnum, said the bank enjoyed its busiest summer in M&A for a long time and that equity capital markets and initial public offering conditions were also strong heading into the fourth quarter.
Deals have been buoyed by higher asset prices, with U.S. equity markets repeatedly hitting records this year, driven by excitement over U.S. Federal Reserve interest rate cuts. However, that exuberance is causing concern that a major asset price correction is on the horizon.
The International Monetary Fund on Tuesday also warned that markets were too complacent about trade and geopolitical risks.
“A lot of assets (are) looking like they are entering bubble territory. But those prices fuel IB, equities, asset management,” said JPMorgan CEO Jamie Dimon. He said in credit markets, there were “early signs of some excess.”
Wells Fargo surged 7 per cent in afternoon trading, while Citigroup climbed 3.4 per cent. Goldman Sachs and JPMorgan fell 1.5 per cent and 1.7 per cent, respectively.
“Momentum continues across the majority of business lines with Wall Street remaining strong and the demand for consumer loans is very resilient,” said Mac Sykes, a portfolio manager at Gabelli Funds.
Global investment banking fees reached a four-year high in the first nine months of the year, underpinning earnings.
“The thing about choppy waters is that they create opportunities, and the market volatility experienced over the past few months has created the perfect environment for U.S. investment banks to thrive,” said Danni Hewson, head of financial analysis at AJ Bell.
Worldwide investment banking fees rose 9 per cent to US$99.4-billion so far this year, the highest since records were set in 2021, according to LSEG data. M&A dealmakers were standout performers in the third quarter, particularly in technology and financial M&A, where fees increased 55 per cent and 34 per cent, respectively, the data showed.
In addition to buoyant equity markets and interest cuts, dealmaking has been spurred by lighter regulations under U.S. President Donald Trump, which offset the uncertainty from trade tensions that stalled activity earlier this year.
Global mergers and acquisitions surged 40 per cent in the third quarter versus the previous year, according to Dealogic data. Megadeals also resumed, hitting a stunning US$1.26-trillion. The US$55-billion acquisition last month of video game developer Electronic Arts by buyout group Silver Lake, Saudi Arabia’s Public Investment Fund and Affinity Partners was the largest leveraged buyout in history.
The rebound in activity also led to a flurry of job-hopping by senior executives. Even the U.S. government is contributing to the boom, with the Trump administration pursuing deals across up to 30 industries, involving dozens of companies deemed critical to national or economic security, Reuters reported this month.
“There is no question that there’s a fair amount of investor exuberance,” Goldman Sachs CEO David Solomon told analysts. “While I feel good about the forward outlook on balance, the market operates in cycles. Disciplined risk management is imperative.”