After two years of recession, the investment bank appears to be entering the early stages of a recovery. Investment banks reported double-digit profit growth in the first quarter, driven by a strong IPO (Initial Public Offering) markets and a resumption of debt subscription. Here are three stocks to buy today to capitalize on this rally.
1. Goldman Sachs plays straight into investment banking
Goldman Sachs (NYSE:GS) is the closest thing to a purely specialist investment bank that you can invest in. It wasn’t entirely by choice. The bank ventured into consumer banking in 2016 and aimed to collect deposits and create a more resilient profit stream through cycles.
This push did not yield good results, and he began to wind down his mainstream activities Last year.
Goldman Sachs is therefore expected to be one of the main beneficiaries of capital markets activity, which was the case in the first quarter. The company’s earnings per share (EPS) more than doubled from the fourth quarter and increased 27% from the same quarter last year.
Investment banking fees of $2 billion increased 32% from last year, with good growth in advisory, equity and debt underwriting services YoY last. CEO David Solomon noted several significant IPOs, including Redditwhich were well received and showed an increased appetite for risk from investors.
Additionally, refinancing corporate debt was a recurring theme. Solomon sees a more accommodative issuance environment and more funding for acquisitions as two elements that lead the bank to expect “robust levels of debt underwriting activity to continue this year.”
2. Morgan Stanley CEO says we are in the early stages of a recovery
Morgan Stanley (NYSE:MS) is another bank with significant investment banking operations. However, it differs from Goldman because it has built a significant asset and wealth management business. These more diversified profits can help stabilize the bank’s business during periods of lull in investment banking.
Morgan Stanley’s EPS jumped 138% from the fourth quarter and 19% from the same quarter last year. Its earnings revealed mixed results at the investment bank. For example, mergers and acquisitions (M&A) declined and consulting revenue fell 28%. However, equity underwriting and debt underwriting revenues increased by 113% and 37%, respectively, compared to the same period last year.
Ted Pick took over as CEO of the bank in January following the resignation of James Gorman, who had led the bank since 2010. Pick told investors that “the pipeline is clearly growing” and that we are now in the “early stages of a multi-year M&A cycle” that could last three to five years. This, coupled with the recovery in equity markets and debt underwriting, could be a powerful boost to investment banking revenues.
3. Citigroup’s efficiency efforts could get a boost from the investment bank
Citi Group (NYSE:C) May not be known for her investment banking operations, but she raised $903…
