Don’t Be Dazzled by Billions in Bank Fees

Morgan Stanley just had a record quarter, bringing in over 20% more revenue than ever before. Goldman Sachs traders smashed through Wall Street’s estimates for the best performance they’ve seen in a decade.

And JPMorgan’s bond traders had such a stellar quarter that the $7.3 billion they generated would have set a record for total trading even if the equities unit brought in nothing at all, my colleague Michelle Davis points out.

The Fed’s historic moves have breathed new life into bond markets, with Wall Street basking in a windfall of debt-underwriting fees along with trading gains. But CEOs at all three investment banks said their securities businesses will probably revert to more normal levels, and there are some nerve-racking signs for the economy ahead.

Bankruptcies will be a “natural consequence” for small and big businesses struggling without clients coming in, Morgan Stanley CEO James Gorman told me and my colleague Jonathan Ferro on Bloomberg Television. Edward Altman, the father of the Z-score method of predicting insolvencies, told Bloomberg that “mega” failures are on the rise.

“This is not a normal recession,” JPMorgan CEO Jamie Dimon said on a conference call Tuesday. “The recessionary part of this you’re going to see down the road.”

Wall Street’s biggest banks put up an additional $35 billion of provisions for bad loans in the second quarter, expecting a slow bleed ahead. Wells Fargo, after posting its first loss since the financial crisis, pledged to cut $10 billion in costs. Many CEOs have said their loss provisioning probably won’t get much worse. But they can’t make any promises.

Guggenheim’s Scott Minerd expects more provisions for the banks later this year, calling the current estimates “a stab in the dark.”

Let’s All Go Public

We know that debt underwriting has been good. The equities boom is more surprising. Goldman’s Susie Scher, who co-leads the global financing group at Goldman Sachs, says the markets are in an “IPO phase.”

“If you had told me at the beginning of this crisis that the IPO market would re-open, stay open and accelerate, I would have told you you were wrong,” Scher told my colleague Alix Steel. The Goldman banker said she’s heard of companies accelerating their go-public timelines.

Plus, blank-check companies are all the rage. We’re waiting for Bill Ackman to take his SPAC to market after boosting its IPO target to $4 billion, and could eventually raise $7 billion. And there’s more where that came from. Rainmaker Michael Klein forged an $11 billion deal for his special-purpose investment vehicle to merge with MultiPlan Inc.

We’ll be covering the evolution of the IPO, because direct listings are apparently also still on the table even amid all of this year’s volatility.

More on Wall Street

• Bill Gross sours on growth. Here’s his investment outlook.
• Mike Novogratz says the stock bubble is spurring “dangerous valuations.” Here’s his full BTV interview with me.
• Lazard surveyed more than 200 health-care leaders and found more than 60% believe it will take well into 2021 for the pandemic to end and for society to return to a “new normal.” One-fifth believe it will be 2022 or beyond. And more than half believe tele-working is a key feature of that new normal.
• At the same time, Manhattan’s party scene is roaring back to life.

More to come, and all tips and ideas welcome at [email protected].