Investment banking was the rock star of big bank earnings this season. Club holdings Morgan Stanley and Wells Fargo , along with JPMorgan Chase , Goldman Sachs , Bank of America and Citigroup , saw double-digit percentage growth in revenues for their investment banking businesses. Meanwhile, fees from the five largest U.S. investment banks, which include Morgan Stanley, Goldman, JPMorgan, Citi and Bank of America, came in at roughly $8.2 billion during the second-quarter, a 40% increase since the year prior. For Club stock Morgan Stanley, investment banking revenues surged 51% year over year with equity underwriting fees jumping over 56%, and advisory fees increasing over 30% from the year-ago period. Investment banking falls under Morgan Stanley’s institutional securities division. This was welcome news because Morgan Stanley’s IB business is a crucial part of our investment thesis. We’ve been betting on a rebound in the firm’s dealmaking segment after two lackluster years. Macroeconomic uncertainty, combined with higher borrowing costs, weighed on mergers and acquisition (M & A) business and initial public offerings (IPO) activity since the Federal Reserve began raising interest rates in 2022. We boosted our price target to $120 apiece from $98 after results, forecasting more upside for the stock into 2025. This implies a more 16% increase from Friday’s close. MS YTD mountain Morgan Stanley (MS) year-to-date performance Traditional lenders and money centers like Wells Fargo also benefitted from the pickup in deals. Wells Fargo’s investment banking revenues, which fall underneath its corporate and investment banking (CIB) division, jumped 38% year over year. Investment banking is still a small business at Wells, and well behind its financial peers. The firm brought in $430 million in IB revenues this quarter, compared to Morgan Stanley’s $1.6 billion and JPMorgan’s reported $2.5 billion. But the boost in IB revenues for Wells gives investors a hint of future potential as management continues to invest further into its dealmaking segment. A CNBC analysis in May found that Wells has made more than 17 senior hires in its CIB division since 2023. This helps to diversify Wells’ revenues further, and garner more durable income streams like fees from M & A advisory or underwriting. Plus, the firm will be able to grow its CIB division, generating even more revenues once regulators decide to take Wells Fargo’s $1.95 trillion cap off its assets. The timing on the removal, however, remains unclear. It wasn’t all smooth sailing for the big banks. The Federal Reserve’s strategy of keeping interest rates higher for longer left banks in a tricky spot as customers sought higher-yielding alternatives. This led to a miss in revenues for Morgan Stanley’s wealth management segment. Meanwhile, Wells Fargo stock plummeted on its July 12 earnings results after management maintained its full-year net interest income (NII) outlook to be a roughly 7% to 9% decline from 2023. NII is seen as a solid measure of profitability for a bank’s lending activities. High rates have impacted interest-based revenue streams because customers are taking their assets to higher-yielding products. However, management doesn’t have control over U.S. central bank policy, so we were pleased to see that growth in its fee-based, or non-interest income, was there. Non-interest income came in well ahead of analysts’ expectations for the second quarter, up nearly 19% year over year. We upgraded Wells Fargo’s stock to a buy-equivalent 1 rating on this growth. WFC YTD mountain Wells Fargo (WFC) year-to-date performance “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Wells Fargo CEO Charlie Scharf said during the July 12 earnings call. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading and investment banking fees.” And good news for investors, it doesn’t look like the rebound in investment banking is slowing anytime soon. In fact, Morgan Stanley CEO Ted Pick said “we’re in the early stages of a multiyear investment banking-led cycle,” he told analysts during the July 16 earnings call. “We are quite convicted on this call.” Meanwhile, Goldman Sachs CEO David Solomon said the financial behemoth is seeing “the early innings of a capital markets and M & A recovery.” Investors are betting that M & A recovery would get even more fuel under a second Donald Trump presidency, which is one reason why financial stocks were strong performers over the past week with politics front and center for Wall Street. An expectation that banks would see easier regulation also figured into the sector’s strength. (Jim Cramer’s Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
Investment banking was the rock star of big bank earnings this season.