Investment Banking Surged in the First Half of 2024: 3 Stocks to Buy Hand Over Fist Today
Investment banks have had a tough go of it over the past several years as deal activity dried up. However, things are showing signs of turning around. In the first half of this year, investment banks saw earnings rebound thanks to receptive debt and equity markets.
Investment bank CEOs have noted that backlogs are increasing significantly, an excellent sign for investment banks going forward. Here are three investment banks you can scoop up today to take advantage of this rebound.
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Goldman Sachs
Goldman Sachs (NYSE: GS) struggled the most in recent years as investment banking came to a screeching halt while it also unwound its consumer banking business. However, it is the largest investment-bank-heavy business and is a great way to play a rebound in investment banking activity.
Goldman has had an excellent start to the year, growing its revenue and diluted earnings per share by 17% and 70%, respectively. This strong earnings growth is due to robust investment banking fees of $3.8 billion, a 27% increase from last year. Debt and equity underwriting have been especially strong, growing 38% and 34% year over year.
CFO Denis Coleman told investors that the investment bank has seen "a material increase in client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity." CEO David Solomon noted, "Our investment banking backlog is up significantly in this quarter" and that "we are in the early innings of a capital markets and M&A recovery."
Morgan Stanley
Morgan Stanley (NYSE: MS) has done a better job diversifying its revenue into asset and wealth management, but investment banking continues to be an important part of its overall business.
In the first half of this year, the bank's revenue jumped 8% due to robust investment banking revenue, which increased by 34%. In the second quarter, investment banking revenue jumped 51%, as revenue from equity underwriting increased 56% and debt underwriting surged 71%.
CEO Ted Pick, who took over for James Gorman at the beginning of this year, told investors that tempering inflation and interest rate normalization has helped improve market conditions for companies raising capital.
Pick noted that the bank is seeing more IPOs launch and its M&A activity is beginning to pick up. He believes "we are in the early stages of a multiyear investment banking-led cycle."
According to data from Dealogic, global M&A volume was $1.6 trillion, up 20% from last year, while equity capital market volume increased 10%. In a report from Moody's, the rating agency noted: "High-yield debt issuance volumes were up significantly from a year ago, building on momentum over the last 12 months that likely reflected tighter credit spreads, more clarity around monetary policy and a better-than-expected economic outlook."
Citigroup
Citigroup (NYSE: C) is one of the larger banks in the U.S. with a sizable investment banking business. Citi's revenue growth of 1% in the first half is significantly lower than Goldman and Morgan Stanley's and reflects its broader banking business. Higher interest rates have weighed on its net interest income, which has fallen 1% year over year.
One bright spot has been investment banking, where fees have grown 45% to $1.9 billion in the first half of the year. CEO Jane Fraser told investors that investment-grade bond issuance was "near record levels." She went on to say that Citi also saw a strong pipeline, and advisory activity is also looking promising for the next several quarters.
Citi is amid a multiyear transformation under Fraser as it looks to narrow its focus and become more efficient and profitable. The stock trades at a reasonable valuation, at a 25% discount to its tangible book value, and could get a nice boost if investment banking stages the recovery many expect.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen has positions in Morgan Stanley. The Motley Fool has positions in and recommends Goldman Sachs Group and Moody's. The Motley Fool has a disclosure policy.
