Wall Street rebound likely to be impressive

June 30, 2009

The Wall Street Journal has the rundown on how old-fashioned  trading and underwriting is likely to give big banks like JPMorgan, Goldman Sachs, Morgan Stanley and Bank of America their best quarter yet since “the credit crisis erupted” (not sure when they’re dating that exactly though since you could go back to June or Aug 2007 on that one.)

Investor confidence in the debt markets fueled issuance of $1.5 trillion globally from the start of the second quarter through Monday, according to Dealogic. That was slightly lower than in the first quarter, but the latest results showed a rebound in high-yield issuance.

Equity offerings reached nearly $260 billion during the second quarter, which ends Tuesday. That is almost four times the amount recorded during the first quarter, and the highest since 2008′s second quarter, Dealogic said.

In trading, the gap between bid and offer prices on fixed-income assets remained wide through most of the quarter, boosting profits from buying and selling these securities. Fixed-income trading is one of the main earnings drivers for big Wall Street firms.

I have to think that the shrinking pool of market-makers and underwriters is also fueling the good times among the remaining banks. Newcomers though are already nipping at the established banks’ heels, so it will be interesting to see how much of the growing pie the upstarts can slice away in coming quarters.

Also, as the article notes, the banks themselves were behind $90 billion of the equity raise as they scrambled to get out from under the government’s thumb following the stress tests. That’s unlikely to be repeated anytime soon.

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