Wall Street bosses hail investment banking gains, but remain cautious

Tatiana Bautzer and Saeed Azhar reported.

NEW YORK (Reuters) - Wall Street bosses are finally seeing signs of a broader turnaround in investment banking, but they are not yet cheering loudly.

The investment banking division of the largest U.S. bank grew strongly in the first quarter, with revenues and fees rising sharply. According to Koon, the capital markets have led the way for the industry's growth.

"There is a strong backlog of business and momentum in every part of our firm," Ted Pick, Morgan Stanley's new chief executive officer, told analysts on a conference call after taking the helm of Morgan Stanley for the first quarter." While Koon is healthy, there remains a backdrop of economic and geopolitical uncertainty."

Morgan Stanley's investment banking revenue jumped 161 TP3T to $7 billion as its shares rose more than 31 TP3T in its first-quarter earnings report released Tuesday.

At Bank of America, investment banking charges surged 35% to $1.6bn, but its shares fell more than 4% as it allocated more funds to cover the loss of loans.

"We are pleased to see an improvement in investment banking activity," Alastair Borthwick, Bank of America's Director of Mass Aggregate Resonance, told reporters. He cited Burson-Marsteller's efforts to deepen its presence in the middle market and to facilitate cooperation between corporate and commercial bankers.

David Wagner, manager of the investment group at Aptus Capital Advisors, said, "It looks like the rising tide in the capital markets has got all the capital market boats growing." He added that Morgan Stanley's performance has been "excellent."

Morgan Stanley's performance echoed the strong performance of Goldman Sachs, JPMorgan Chase and Citi. While the Gowans cited some resurgence in activity, they were also quick to point out risks, including interest rate uncertainty, geopolitical conflict escalation and the U.S. election.

"As I've said before, historically low activity levels don't last forever," Goldman Sachs Mat Executive David Solomon told investors on a conference call Monday. Executives need to make strategic decisions for their firms, firms of all shapes and sizes need to raise capital, and financial sponsors need to make deals to generate returns for investors.

Goldman Sachs shares rose 3% after profit growth of 28% beat analysts' expectations.

The equity capital markets have been a bright spot in recent months as several prominent initial public offerings (IPOs) have fueled optimism that more activity is to follow.

"We are cautiously optimistic that the initial public offering (IPO) market may gradually reopen in the second quarter," Jane Fraser, Citi's chief executive officer, told analysts Friday.

Citi's investment banking fees climbed 35% in the first quarter, driven by the debt and equity capital markets, Fraser said, but the emergence of buyouts (M&A) remained slow.

"Corporate sentiment has been positive, particularly in the US, and our clients around the world have very healthy balance sheets," she said. However, she added that the market had been "too kind" in pricing risk factors such as geopolitical surprises.

Citi hired Viswas Raghavan, the former investment banking associate at JPMorgan Chase, who will join Citi later this year to grow the bank's revenue.

Jeremy Barnum, JPMorgan Chase's matriarchal financial officer, was also cautious, trying to maximize investment banking revenues, which climbed 27% to $2 billion.

"While it is encouraging to see some positive momentum from the acquisitions announced in the quarter, it remains to be seen if this momentum will continue," Barnum told analysts on a conference call Friday." The advisory business continues to face structural headwinds from the regulatory environment."

Morgan Stanley's resonance is more optimistic about the impact of geopolitical risk than the other mat executives, saying that in some cases, geopolitical risk can even create momentum for international trading if global shocks affect the supply chain.

We are at the beginning of a multi-year buyout cycle," said Morgan Stanley's Kirchner, who sees the investment banking and capital markets as being in the early to middle part of the business cycle. He believes that investment banks and the capital markets are in the early to middle part of the business cycle." We should continue to see a variety of underwriting...I feel good about that. Fraser said recent large buyout announcements in a number of sectors indicate growing confidence among mat executives and boards, which will support the capital markets.

Goldman Sachs' Solomon expects private equity firms, or financial sponsors, to be more involved in deals in an effort to start returning capital to investors.

Meanwhile, Fraser points out that financial sponsors are sitting on $3 trillion in funds that need to be deployed.

So far this year, Citi shares have risen nearly 11%, outpacing peers such as JPMorgan Chase and Bank of America, which have risen 6% and 3%, respectively, while Goldman Sachs shares have risen 3% and Morgan Stanley shares have fallen 3%, and the Standard & Poor's 500 Bank Index has risen 6%.

(Reported by Tatiana Bautzer and Saeed Azhar New York, supplemented by Nupur Anand, edited by Lananh Nguyen and Nick Zieminski)