The chances of the US economy avoiding a hard landing or recession are looking good. This optimism is reflected in the sentiment among businesses.

One consequence of this is the resurgence of the mergers and acquisitions (M&A) market. Additionally, the issuance of new stocks and bonds is gaining momentum. Accordingly, fee revenues in investment banking have seen a significant increase, providing a counterbalance to declining interest margins and other negative factors. Against this backdrop, nearly all major US banks exceeded financial analysts' expectations with their results.

Positive Surprises

Just last Friday, J.P. Morgan, the industry leader among large US banks, reported a profit of $12.9 billion for the third quarter of 2024. Although this represents a 2 percent decrease from the same period last year, the bank managed to surprise investors and analysts positively with better-than-expected fee revenues in investment banking, which grew by 13 percent to around $5.7 billion.

Wells Fargo also benefited positively from its investment banking activities. The fourth-largest US bank had expanded this sector in recent years while scaling back its interest business. In Q3 2024, the San Francisco-based bank saw its fee revenues surge by 37 percent to $672 million. This helped offset lower interest earnings and contributed to a 12 percent increase in non-interest income, totaling $8.7 billion during the period.

Goldman Sachs in the Trend

This upward trend continued on Tuesday with the reports from three other Wall Street giants. Goldman Sachs reported a 20 percent increase in investment banking revenues to $1.87 billion, driven partly by its role in Kellanova's acquisition of Mars. Quarterly profits rose by 45 percent to $2.99 billion.

Citigroup also excelled, with investment banking revenues up 31 percent to $934 million. However, the overall result fell by 9 percent to $3.2 billion due to write-offs in the credit card business.

More Deals Expected

Bank of America exceeded expectations in investment banking with a 15 percent growth. While M&A advisory fees decreased, the bank mainly benefited from equity and bond issuances. The figures from the major US banks indicate that the long-anticipated recovery in deal-making is finally underway.

The recovery of the M&A market is further supported by a study from the Boston Consulting Group, which states that North America remains a hub for M&A activity, as reported by finews.ch. Wall Street bankers are also optimistic that the interest rate cuts by the US Federal Reserve in September will pave the way for more deals and public offerings.

A Cautionary Note on Geopolitics

However, J.P. Morgan CEO Jamie Dimon poured cold water on the enthusiasm, by issuing a stark warning regarding geopolitical risks in his outlook. While inflation in the US is declining and the economy remains resilient, political uncertainties persist or have even worsened. He pointed to issues such as national debt, infrastructure needs, and military spending.

Regarding the geopolitical landscape, he stated that «the conditions are treacherous and are worsening.» This could have «far-reaching implications for both short-term economic outcomes and, more importantly, the course of history.»