Dealmakers In Search for Fees

There had been a growing sense that core Wall Street businesses — investment banking and trading — would push the biggest banks toward greater profits.

To some degree, that’s true. JPMorgan had record profits. Investment banking surged 50% off of relatively meager levels a year ago. At Citigroup, equities trading soared past analyst estimates and Chief Financial Officer Mark Mason told journalists that the dealmaking pipeline “is quite strong.”

But if you look under the hood, there are some major questions. One is whether the banks can squeeze more money out of the investment-banking market when there’s so much uncertainty in the second half of 2024. Another is whether the big money-center banks can make enough from their Wall Street businesses to offset growing concern that the economy is slowing, weakening Main Street along with it.

Provisions for loan losses at JPMorgan were the highest since the early days of the pandemic in 2020. Wells Fargo’s stock fell as much as 7.6% intraday on Friday after reporting that net interest income dropped to the lowest level in two years. Charlie Scharf, the bank’s chief executive, said fees tied to dealmaking and trading are starting to offset some of the decline tied to consumer lending.

The consumer businesses and core lending franchises are massive at most of America’s top banks. At JPMorgan, net interest income in the quarter was $22 billion for all loans tied to consumers and commercial enterprises. Investment banking was a little over a 10th of that sum. It’s hard to imagine that a dealmaking rebound could do too much to pull up most banks given that JPMorgan is a dealmaking giant and its lead over the others is massive. That means that deals alone are less likely to pull other banks up from any slowdowns in lending income.

And on the topic of investment banking, JPMorgan’s finance chief struck a note of caution. That’s even for a behemoth that took in more than $1 billion in debt underwriting fees for two quarters in a row.

“We remain cautiously optimistic about the pipeline, although many of the same headwinds are still in effect,” Jeremy Barnum told analysts on Friday in a conference call. “It’s also worth noting that pull-forward refinancing activity was a meaningful contributor to the strong performance in the first half of the year.”

Privately, one CEO of a boutique bank even whispered an unpleasant possibility: Would there have to be another round of Wall Street layoffs given that there are still troubles at hand?

The second half of the year brings, of course, a heated election season in the US and tons of antitrust questions around whether large deals will get done. I’m not sure there’s a better answer to all of this than simply: time will tell.

Open Interest

This week, we launched a new show for Bloomberg Television, “Open Interest.” It’s one that I’ve been excited about for a long time. Bringing you the top names in corporate America and in investing daily, here were some of the highlights from week one:

• Howard Marks, co-chairman and co-founder of Oaktree Capital Management, on where pains might start to emerge in the market as the cost of debt remains higher, for longer.
• Greg Jensen, the co-chief investment officer of Bridgewater Associates, on how the world’s largest hedge fund is thinking about artificial intelligence on the heels of launching a new strategy largely run by machine learning.
• Steve Eisman of “The Big Short” fame on how to think about trades tied to the US election, which he thinks with “100% certainty” that Donald Trump will win.
• Famed short-seller Carson Block about his trade against Blackstone Mortgage Trust, the environment for betting against stocks and the potential to short regional banks.
• Morgan Stanley’s Mike Wilson on how he expects a 10% market correction, and the theory of strategy at one of the world’s largest investment banks.

More to come. Tune into Open Interest every day from 9:00 a.m. to 11:00 a.m. eastern time, daily, with me, Matt Miller and Katie Greifeld. Next week, we will double down on the big banks and also have top insights from investors and strategists around the Republican National Convention. Would love to hear your thoughts. Tips and opinions are always welcome at sbasak7@bloomberg.net.