US banking giants see gains from dealmaking surge but warn of asset froth

Major US bank executives predicted more windfalls as equity markets surged over the last quarter and the economy held up despite tariffs, but some warned of frothiness in asset prices.

 

At Goldman Sachs, investment banking revenue jumped 42 per cent in the third quarter, while rival JPMorgan Chase's investment banking fees climbed 16 per cent, the banks reported on Tuesday. Wells Fargo and Citigroup also had solid performances in investment banking.

 

"Pipelines look good, the activity levels are good, and the conversations are constructive" with clients, Wells Fargo Chief Financial Officer Mike Santomassimo told journalists on a conference call.

 

His counterpart at JPMorgan, Jeremy Barnum, said the investment banking (IB) environment is quite good after the bank saw its busiest summer in M&A for a long time. Conditions for equity capital markets and IPOs are also strong heading into the fourth quarter, Barnum added.

 

The strength in M&A is being buoyed by higher asset prices, where US equity markets have repeatedly hit records. However, that is causing some concerns.

 

"A lot of assets looking like they are entering bubble territory. But those prices fuel IB, equities, asset management," said JPMorgan

JPM.N CEO Jamie Dimon. Dimon said that in credit markets, there were "early signs of some excess."

 

Citigroup Chief Financial Officer Mark Mason said that there were signs of frothiness in equity markets.

 

"When you look at equity markets, I think it's hard not to think that there could be some frothiness in different sectors, and so we'll have to kind of see how that ultimately evolves," Mason told journalists on a conference call.

 

HIGHER INVESTMENT BANKING FEES

 

Global investment banking fees reached a four-year high in the first nine months of the year, underpinning earnings.

 

"What we've learned so far is that momentum continues across the majority of business lines with Wall Street remaining strong and the demand for consumer loans is very resilient," said Macrae Sykes, a portfolio manager at Gabelli Funds.

 

Worldwide investment banking fees rose 9 per cent to $99.4 billion so far this year, the highest since records were set in 2021, according to LSEG data.

 

Dealmakers in mergers and acquisitions were standout performers in the third quarter, particularly in technology and financial M&A, where fees increased 55 per cent and 34 per cent, respectively, the data showed.

 

Multibillion-dollar deals have also resumed as tariff uncertainty subsided and the Trump administration sought to ease regulations. Megadeals in the third quarter tallied up to a stunning $1.26 trillion.

 

The $55 billion acquisition last month of video game developer Electronic Arts by buyout group Silver Lake, Saudi Arabia's Public Investment Fund (PIF) and Affinity Partners was the largest leveraged buyout in history.

 

The rebound in dealmaking has been spurred by stocks at historical highs, lower interest rates and lighter regulations under Trump, which offset the uncertainty from trade tensions that stalled activity earlier this year.

 

Global mergers and acquisitions surged 40 per cent in the third quarter versus the previous year, according to Dealogic data.

 

While megadeals rebounded, a paltry 8,912 deals were signed, down 16 per cent from last year, the worst third-quarter for deal volume in 20 years, the data showed.

 

The rebound in activity also led to a flurry of job-hopping by senior executives.

 

Even the US government is contributing to dealmaking, pursuing deals across up to 30 industries, involving dozens of companies deemed critical to national or economic security, Reuters reported this month.