7th December 2023

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Business Industry and Financial

Goldman Sachs and Morgan Stanley CEOs see ‘green shoots’ on Wall Street

The chief executives of Goldman Sachs and Morgan Stanley said they were seeing “green shoots” in their struggling investment banking businesses, which implemented large-scale dismissals as higher interest rates damped activity.

Wall Street firms are suffering through one of the leanest periods in years even by the standards of the feast-to-famine nature of investment banking, with a dearth of capital markets activity and deals as would-be buyers and sellers struggle to agree on price.

However, after several quarters of falling investment banking revenues, Morgan Stanley’s James Gorman and Goldman’s David Solomon said the environment was showing signs of improving.

“My gut tells me, and this is probably not a good read but it served me pretty well over time I would say, I feel like we’ve bottomed on this. I just feel the tone is a little better,” Gorman said at an industry conference organised by Morgan Stanley. “We’re clearly seeing more green shoots. I’m having more discussions with CEOs.”

Gorman, who plans to step down as CEO within the next 12 months, also said Morgan Stanley was “unlikely” to pursue further large-scale dismissals in the near future after the bank cut several thousand jobs in recent months.

“You can never say for sure but it’s unlikely we’ll be going back to that world,” he said of the recent job cuts, adding he thought the bank’s headcount was “where we want it”.

Speaking to CNBC, Solomon said Goldman was also seeing “green shoots” of activity. “We reset valuations in 2022, we reset capital costs, and that obviously slowed down capital markets activity significantly. I always say it takes four to six quarters to reset. We’re kind of five quarters in,” he said. 

“I would expect capital markets activity to pick up as we head into 2024. At the end of the day, people need capital, they can defer some of those activities but at the end of the day, they can’t postpone them indefinitely.”

In a sign of life in the moribund US market for initial public offerings, fast casual restaurant chain Cava on Monday increased the price range for its planned listing this week on the New York Stock Exchange.

Gorman added it was unlikely the Federal Reserve — which has raised its benchmark rate to between 5 per cent and 5.25 per cent — would cut interest rates this year but then rates may start to drop “at some point” in 2024 before settling at 2 per cent to 3 per cent.

Solomon warned the US could still face a challenging environment of low growth and persistent inflation even if the world’s largest economy avoids a recession.