Wall Street Bonuses Have Just Been Salvaged

(Bloomberg Opinion) — Wall Street’s bankers and traders can now feel much better about this year’s bonuses than they did only in the summer. The volume of deals and stock-market fundraisings is still running relatively low compared to economic output or the value of the S&P 500 Index. But a blowout September has set up 2024 to be a surprisingly solid year for investment banking fees after all.  
Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. warned analysts just over a month ago that investment banking or markets revenue would likely disappoint. But on Tuesday, the three followed JPMorgan Chase & Co. in comfortably beating third-quarter earnings expectations.
Citigroup reported its best quarter for investment banking revenue since 2021 at $999 million, an encouraging sign for a bank that has long underperformed rivals. The result was driven by a big jump in advisory fees to $394 million, up 47% on the previous quarter and 32% better than the same period last year. It was also only the third time in five years that Citigroup has pulled in more quarterly dealmaking fees than Bank of America.
All four banks benefitted from some large mergers and acquisitions closing earlier than expected, but Citigroup has also overhauled its operations, cut bankers, management and back-office staff, and brought in a new leader in Viswas Raghavan, who joined from JPMorgan this year.
Mark Mason, Citigroup’s chief financial officer, said the investment bank was focused on trying to gain market share and earn more fees from its corporate banking clients in the US as well as pursuing market share in other higher growth markets. “Some of this is starting to play through to the top line,” he said.
For Wall Street broadly, debt issuance was the big driver of investment banking revenue for most of this year as bond and high-yield loan markets reopened. That trend continued in the third quarter with a wave of opportunistic investment-grade bond sales as the Federal Reserve started to cut interest rates. 
In the stock market, initial public offerings and other equity sales have been weak relative to 10-year average volumes, but M&A activity has started to pick up towards more normal levels. Goldman Sachs expects dealmaking to continue to rebound this year and in 2025, especially as private equity buyout activity begins to recover alongside corporate deals. 
With Morgan Stanley still to report earnings on Wednesday, total investment banking fee revenue so far this year is already ahead of totals in the first three quarters of 2022 and 2023. If Morgan Stanley meets estimates, fees in 2024 will be on course to beat each of the three years preceding  the Covid-19 pandemic and the flood of public money that fueled an investment banking boom.
Equities trading was also much stronger than forecast for the third quarter at all four banks, helped by higher volatility in markets, which encouraged more derivatives activity and higher borrowing by hedge funds. Trading in bonds, currencies and commodities was slower for most than last year, except for Bank of America, which reported a 9% rise. 
Financing in the bond trading business has been a growth area for several banks because of greater demand for leverage from private asset managers and multi-strategy hedge funds. Goldman Sachs reported its highest-ever quarterly revenue for fixed-income, currencies and commodities financing at $949 million, 30% ahead of the same period last year.
Bank of America has also been growing strongly in this and prime brokerage in recent years, according to bankers involved in these fields. It doesn’t report revenue numbers separately like Goldman Sachs, but a clue to its growth can be found in the total loans made by its markets division: These doubled to $141 billion during the third quarter of 2024 from $74 billion in the final quarter of 2020.
One upshot of the recovery in banking and trading activity is bigger bonuses, which mean the banks are accruing higher pay costs. At both Goldman Sachs and JPMorgan’s investment bank, compensation costs over the first nine months were up about $1 billion, or 9%, versus the same period last year. Bank of America only reports group pay expenses and these were 4% higher versus last year. At Citigroup, pay was down 3% across the group, reflecting the raft of job cuts that are part of its simplification project. Within that, however, its investment bankers and traders are likely to see much better numbers.
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Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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