The sharp slowdown in investment banking in the second quarter; the shuttering of IPO markets almost everywhere aside from the Middle East; banks’ struggles to shift leveraged finance and high yield inventory; and the challenge even for investment-grade bond issuers to scramble through narrow issuance windows; these have all been obvious to investors in bank stock for weeks.
So, when JPMorgan and Morgan Stanley kicked off the second-quarter earnings season yesterday (July 14), nobody should have been surprised to see investment banking revenues 55% lower than in the second quarter of 2021 at Morgan Stanley and 61% down at JPMorgan.
As well as declining fees, particularly from equity capital markets, both banks also reported mark-to-market losses on their bridge lending books thanks to June’s blowout in credit spreads.
None of this is going to get better any time soon, though higher markets revenues as investors reposition portfolios in volatile markets did provide a cushion in the second quarter.
Second phase
The next shoe to drop is M&A. So far, equity investors have applied the higher discount rate from central bank hiking to lower valuation multiples of corporate earnings.
