Ted Pick’s first big quarter seals Wall Street's i-banking revival, with cheap debt fueling a fee surge across the big banks
Break out the Red Bull and Adderall because investment banking is back, baby! Morgan Stanley’s Q3 profits soared 32% with a 56% jump in investment banking revenue, putting the last piece in a puzzle that completes the picture of a full-blown i-banking renaissance. Newly-minted Morgan CEO TedPick is showing the Street that this is a pretty great time to put an investment banker at the helm with rates dropping and private equity coming out of its slumber like a capital-leaden titan.
WHAT HAPPENED
Morgan Stanley’s monster quarter closed the loop on a full-blown revival of Wall Street’s fee engine. Goldman Sachs already wowed analysts with a 20% surge in investment banking revenue, fueled by a rush of debt underwriting and some tasty secondary offerings. Not to be outdone, JPMorgan Chase reported a 31% jump in fees, netting $2.4 billion, and sending clear signals that the deal drought is over. And now, with Morgan Stanley reporting a huge boost in its own IB revenue, the message is clear: Dealmaking is back in style, and bankers are cashing in.
What’s driving the frenzy? A cocktail of rising market confidence, courtesy of a dovish Fed, and CFOs eager to lock in financing or IPO before the next rate hike ambush. IPOs like Lineage Logistics and StandardAero gave banks plenty to celebrate… and invoice.
Across North America, investment banking revenues are up 31%, and the industry is humming along like it’s 2019 again. With Pick at the wheel, Morgan Stanley is leading the charge, but the question now is can they keep the momentum going?
WHY IT MATTERS
Think of PE as driving the entire financial system and it’s got one hand on the wheel while the other is rapidly texting investment bankers. It holds a sheer tonnage of capital that is should be using to buy distressed assets, engineer mega-acquisitions, take companies private, take companies public, or strip them down before flipping them like houses on a cheap HGTV show. But it’s been pretty inert as of late, sitting on more than half a trillion of uninvested “dry powder” capital, which has been bad for the IB crowd.
PE and IB are like Batman and Alfred: one makes reckless moves, the other quietly takes care in the background, keeps things running smoothly and cleans all the blood off of the car. PE firms need investment banks for almost everything: lining up debt, underwriting bonds, advising on acquisitions, and helping them get their hands on companies to strip and flip. When a PE firm decides to buy, merge, or dump a portfolio company, its first call is to the investment bankers. The bankers show up armed with spreadsheets, debt packages, and a list of lenders willing to fund deals. In return, the bankers collect fat fees at every step, ensuring that no matter what happens to the company, the dealmakers get paid. If PE is the shark, IB is the remora: cleaning up after it but also keeping it fed enough to keep swimming.
Investment bankers, in essence, are the grown-up version of your high school buddy with a hookup for fake IDs. But instead of IDs, they deal in mergers, IPOs, bond offerings, and all kinds of Wall Street magic that help companies raise cash or shuffle risk. They don’t make or sell anything tangible. They just advise people with money on how to make more or at least avoid losing it catastrophically. And when banks like Goldman Sachs or Morgan Stanley report massive investment banking profits, it means they’ve been busy lining up deals from IPOs to M&A to debt offerings. You name it.
When fees are up, it’s a sign that companies and PE firms are feeling frisky, fueled by frothy markets, cheap debt, and the unmistakable clink of IB profits signal confidence in the market, credit flowing freely, and the comforting (if delusional) idea that things will keep getting better forever.
When fees dry up, though, it’s a red flag. Think of it like birds going silent in the forest—everyone’s spooked, nothing is hunting, and everyone’s just trying to survive the winter. Mergers stall, IPOs get shelved, and private equity firms would rather sit on their “dry powder” than overpay for some buzzy startup with 11 users and zero revenue. CEOs stop fantasizing about transformative acquisitions and start Googling “how to cut costs without layoffs.” Meanwhile, bankers trade fat bonuses for long hours pitching deals nobody wants, reduced to offering the least exciting advice of all: “Do nothing for now.”
Interest rates are the secret sauce that keeps the whole machine humming or if it grinds it to a halt. When the Fed hikes, debt gets pricey, and suddenly, ambitious deals look like terrible ideas. Acquisitions stall, IPOs get shelved with vague “market conditions” excuses, and private equity firms sit tight, waiting for discounts. But when rates drop, it’s a free-for-all. Cheap debt makes everyone feel bulletproof and companies borrow recklessly, PE firms dive into bidding wars, and IPOs seem obvious. CEOs pitch buying AI startups with no revenue but lots of hype, and investment bankers cash in on every step: mergers, bonds, IPOs, you name it. As long as the money flows, so do the fees, no matter if the deal becomes a hit or flames out like WeWork.
WHAT'S NEXT
Wall Street’s fee bonanza won’t last forever, but for now, it’s all gas, no brakes. With the Fed hinting at more policy easing, expect companies and PE firms to ride the cheap debt wave as long as it’s flowing. Mergers, IPOs, and leveraged buyouts are likely to stay hot through Q4 and early 2025 because nothing motivates like the fear of missing out on today’s low rates before inflation starts grumbling again.
If the economy holds steady and rates stay friendly, 2024 could end with a flurry of deal announcements as companies look to hit year-end targets and private equity firms finally spend their “dry powder.” But here’s the rub: The market's love affair with deals is fragile. A single Fed pivot or geopolitical hiccup could slam the brakes, sending CEOs scrambling for “cost optimization” strategies instead of signing merger papers.
Investment bankers know this is a "make hay while the sun shines" moment. They’ll push for as many IPOs, buyouts, and refinancings as possible because the party always ends, and when it does, nobody wants to be stuck pitching deals to VPs who are just there for show. For now, though, the champagne is cold, the fees are fat, and bankers are running on caffeine and adrenaline.