After the major banks reported solid profits in Q1, the question on everyone’s mind was: can it be repeat.
The answer is yes, but maybe just for one more quarter.
As the quarter rolls to an end, WSJ reports what many others have started to conclude, which is that Q2 is going to be a monster.
The securities firms still standing on Wall Street are about to close the most lucrative quarter since the credit crisis erupted.
And instead of relying on risk and leverage to drive profits, companies such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. are getting back to basics, with a strong performance from trading and underwriting.
Investor confidence in the debt markets fuelled issuance of $1.5 trillion globally from the start of the second quarter through Monday, according to Dealogic. That was slightly lower than in the first quarter, but the latest results showed a rebound in high-yield issuance.
Equity offerings reached nearly $260 billion during the second quarter, which ends Tuesday. That is almost four times the amount recorded during the first quarter, and the highest since 2008’s second quarter, Dealogic said.
In trading, the gap between bid and offer prices on fixed-income assets remained wide through most of the quarter, boosting profits from buying and selling these securities. Fixed-income trading is one of the main earnings drivers for big Wall Street firms.
At least at this point, though, everyone’s assuming this is it, that Q3 won’t be so hot, since much of the gains in debt and equity issuance was backlog from the Q4/Q1 thaw. As the article notes, $90 billion of the $260 billion equity offerings were the banks own post-stress test capital raises. On the other hand, they’re still making tons of money from all the government debt that’s being created, and we don’t see that disappearing (sadly) anytime soon, so at least that money train will continue.