Wall Street banks are poised to launch a series of bond offerings to take advantage of low credit spreads and robust investor demand. Following the release of quarterly earnings, the top six U.S. banks are expected to borrow between $20 billion and $24 billion, surpassing the typical $15 billion raised in October over the past decade. Analysts foresee banks capitalizing on borrowing costs at near 20-year lows to complete at least $15 billion to $20 billion in sales.
Analysts suggest that major banks, as the largest borrowers in the U.S. investment-grade bond market, are strategically positioning themselves ahead of potential market volatility surrounding the upcoming U.S. elections. Kabir Caprihan, a credit analyst at JPMorgan, highlighted in a report that these banks might borrow significantly more than usual post-earnings. So far this year, these banks have borrowed about $107 billion at the senior holding company level.
Nicholas Elfner from Breckinridge Capital Advisors believes it's reasonable for banks to issue new bonds after earnings and ahead of elections, expecting supply normalization in coming quarters. These banks frequently need fresh capital to support lending activities and are known for their savvy timing in the bond market.
Analyst Arnold Kakuda noted that banks are leveraging the low borrowing costs due to strong investor demand. The "big six" banks might strategically issue more bonds to cater to the substantial demand for corporate bonds. Typically, banks issue bonds following quarterly earnings announcements. JPMorgan (JPM, Financial) and Wells Fargo (WFC) will announce their results soon, followed by Bank of America (BAC), Citigroup (C), and Goldman Sachs (GS), with Morgan Stanley set to report shortly after.
Moody's predicts strong trading revenue for large banks in the third quarter and improved investment banking performance compared to last year, partly due to increased corporate debt and equity issuances. Attention is focused on net interest income forecasts, a key measure of income from loans versus interest paid to depositors, crucial amid Fed rate cuts. Any hints on performance in 2025 will be critical.
Despite some credit issues, particularly among smaller banks with commercial real estate operations, most banks have a stable outlook due to tighter credit regulation post-regional crisis, according to a Standard & Poor’s report.
Besides the expected bond issuances this month, JPMorgan's Caprihan anticipates an additional $30 billion to $40 billion in new bank bonds entering the market from November through next January. Voya Investment Management's Samuel Wilson indicated his firm's interest in purchasing such bonds, viewing bank stocks as a rare bright spot in a narrow corporate bond spread market.
As of the recent close, U.S. investment-grade spreads average 82 basis points, the tightest level since September 2021. Wilson remarked that in a tight market, these deals remain attractive.
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