Eyes turn to Goldman, Morgan Stanley as rivals tap M&A windfall

[NEW YORK] Pressure is mounting on Goldman Sachs and Morgan Stanley to deliver another minor miracle next week as their firms post results from what was thought to be a tough quarter for investment banking.

On Friday, Citigroup Inc and JPMorgan Chase & Co announced surprisingly strong revenue from advising companies on mergers and raising capital in the second quarter. That lifted the bar for Goldman Sachs Group Inc and Morgan Stanley, Wall Street's top takeover advisers. They report results Tuesday and Wednesday, respectively.

Shareholders had worried investment banking might suffer as some corporate clients delayed acquisitions and capital investments ahead of a global trade war. Banks grew all the more dependent on handling those deals in past quarters, when geopolitical tensions prompted fixed-income investors to hit the brakes on trading. And in this year's first three months, dealmakers at both Goldman and Morgan Stanley managed to top analysts' estimates.

"You have to say that this quarter's performance in investment banking is still pretty strong," Citigroup's chief financial officer John Gerspach told reporters Friday. Still, he credited "wallet-share gains" in advisory, a hint that at least some of the income came at the expense of rivals.

The firm's takeover advisers pulled off a surprise increase in fees, boosting total investment banking revenue to US$1.42 billion, beyond analysts' estimates.

JPMorgan got a bump as some large deals closed during the period, CFO Marianne Lake told analysts. All three of the investment banking group's main segments - debt underwriting, equity underwriting and merger advisory - beat analysts' estimates.

"Our expectations for the outlook remain solid, but benefiting from a very active capital markets environment," Ms Lake said.

Bank of America Corp - ranked No 6 this year in advising on deals globally, according to data compiled by Bloomberg -- is scheduled to report quarterly results Monday. Analysts estimate its investment banking revenue tumbled 15 per cent, the largest such drop predicted among the five top US banks on Wall Street.

The Charlotte, North Carolina-based lender has tamped down risk-taking this year, leaving some dealmakers concerned they're missing chances to profit, people with knowledge of the matter told Bloomberg last month. The firm has grown more selective when offered potentially thorny mandates, while easing off some international markets, the people said.

Investors and analysts will be watching whether Morgan Stanley's dealmakers can outperform Goldman's. Advisory revenue at Morgan Stanley is estimated to climb 14 per cent to US$577 million, the biggest jump among the five banks.

Still, Goldman Sachs is projected to boost total investment banking revenue more than the other firms. Analysts estimate a 58 per cent jump in income from equity underwriting, countering a decline at its debt capital markets business.

"The backlog associated with our investment banking business is near its all-time high," president David Solomon told investors in late May. The firm, he noted, has benefited after developing a team that raises private capital for clients.

BLOOMBERG