: Jefferies projects ‘muted’ Q2 for investment banking but sees ‘green shoots’ in M&A

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Jefferies analysts on Friday projected a continuation of “muted” trends in investment banking, although some encouraging signs are emerging in advising on corporate mergers and acquisitions.

The comments suggested a drop in second-quarter investment banking revenue from megabanks JPMorgan Chase & Co. JPM, +0.03%, Bank of America Corp. BAC, -0.85%, Citigroup Inc. C, +0.19%, Morgan Stanley MS, -0.22%, Wells Fargo & Co. WFC, +0.71% and Goldman Sachs Group Inc. GS, -0.08%.

With about three weeks to go in the second quarter, as well as the first half of 2023, equity capital markets activity “is the one bright spot” as analysts project results for the second quarter based on recent deal activity, Jefferies said.

All told, investment banking fees were down 22% from year-ago levels, with trading proxies for the second quarter pointing to softness in investment banking and sales and trading.

Equity capital markets have shown “meaningful improvement” over the year-ago quarter, while advisory revenue has declined as an offset, but is “showing green shoots in deal and volumes,” Jefferies analysts said.

Jefferies said recent guidance generally implies that sales and trading revenue will drop 20% to 30%, given declining volatility. Fixed income, currency and commodity trading “is holding up better given the rates debate,” analysts said.

Anecdotally, some deal-making appears to be on the rise such as corporate bond issuances and even some mergers and acquisitions.

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A banker at a boutique investment bank active in the asset-management space told MarketWatch that big asset-management firms continue to feel the need to bulk up through acquisitions as a way to achieve greater scale in the face of competitive pressure on fees.

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JPMorgan Chase, Citigroup and Wells Fargo will kick off second-quarter earnings season for banks on July 14, followed by Bank of America, Goldman Sachs and Morgan Stanley on July 18.

Banks have already signaled a slowdown in deal activity by announcing head count reductions including 3,200 at Morgan Stanley and Goldman Sachs expects to cut 250 jobs in its third round of layoffs since late 2022; JPMorgan Chase is cutting 500 jobs.