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Robust revenues from equity and fixed-income trading at the major Wall Street firms helped offset continued weakness from investment banking last quarter, says DBRS Morningstar.

In a new report, the rating agency said third-quarter results for the big U.S. investment banks — JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley — included strong capital markets–driven revenues, which were about 20% higher than pre-pandemic levels.

These results were driven by strength in sales and trading, which more than offset another weak quarter for investment banking, “where activity remains at decade-low levels.”

“Not surprisingly, debt underwriting remained muted, given the interest rate environment,” the report said, “although we expect activity to pick up rather quickly if and when the Federal Reserve signals its intention to pause interest rate hikes.”

Equity underwriting has also been challenging in the current environment.

And, while DBRS noted that there were a handful of high-profile IPOs in September, the share price performances of those companies since they came to market “have been underwhelming,” it said.

This continued weakness in investment banking has been more than counteracted by the resilience of trading activity.

On the equity side, trading revenues were, on average, in line with the same quarter a year ago, which was “very strong,” DBRS said.

“Goldman Sachs generated the most revenue globally for the third consecutive quarter. Performance generally reflected strength in prime brokerage and derivatives,” DBRS said.

At the same time, fixed-income trading revenues were higher compared with the same quarter in previous years, “highlighted by strength in securitized products,” it said.

“Our sense is that commodity trading was the primary driver around the somewhat diverging performances at Goldman Sachs and Morgan Stanley compared with the three universal banks,” it said.

Looking ahead, while the fourth quarter is typically weaker for trading, DBRS said it expects “revenues to remain elevated relative to historical norms, given the likelihood of continued financial market volatility.”

As for the investment banking business, DBRS reported that previous downturns in activity typically haven’t lasted more than eight quarters, and that Q3 marked the seventh quarter of below-average revenues suggesting that a turnaround should be coming soon.

That said, the report noted it’s difficult to predict when activity will return to more normal levels, “given the still complicated operating environment, including an increasingly complex geopolitical landscape.”

“However, signs of improvement are emerging, with the IPO market reopening in September and growing pipelines in [mergers and acquisitions] and underwriting,” it said.