Moody’s expects capital markets boost for Wall Street in Q4

Wall Street’s big banks are expected to report higher investment banking and trading revenue in their fourth quarter results, says Moody’s Investors Service.

The big U.S.-based global investment banks — Bank of America Corp., Citigroup Inc., Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. — begin announcing their results on Jan. 12.

“Fourth-quarter high-yield bond issuances were significantly higher year over year, and syndicated loan issuances also increased from a year ago,” Moody’s stated in a report, citing the impact of “increased clarity around monetary policy and a better-than-expected economic outlook.”

On the equity side, secondary offerings increased but initial public offering volumes were “still at multiyear lows” in the fourth quarter, Moody’s said.

“Equity capital markets revenue should also benefit from higher activity in the convertible bond market,” it said.

On the trading front, Moody’s reported that revenues from trading in the fixed income, currencies and commodities (FICC) segment will likely come in higher than a year ago, with trading volume up from the previous quarter and year over year in credit ETFs as well as in FICC options and futures products.

“Heightened trading in these products reflects activity in the underlying assets and demand for hedging, which generally translate into increased flows and market-making opportunities at the banks’ FICC trading desks,” the report said.

“Volume in prominent credit ETFs was also significantly higher sequentially and year over year” amid looser financial conditions.

At the same time, Moody’s expects equity trading revenues to be flat, given that equity and equity derivatives trading volumes were little changed on both a quarter-over-quarter and year-over-year basis, Moody’s said.

“Additionally, equity market volatility reached a three-year low and financial conditions improved,” it said.

For the investment bankers, merger and acquisition activity was also flat quarter over quarter and down year over year in the fourth quarter, Moody’s said.