Debt markets: People cross the street in front of Morgan Stanley’s headquarters in New York’s Times Square. Four notes totalling US$8bil were offered by Morgan Stanley, while JPMorgan sold US$6bil in two parts. — Reuters
NEW YORK: Morgan Stanley and rival JPMorgan Chase & Co raise a combined US$14bil in the US investment-grade market, the first of the six biggest banks on Wall Street to tap primary debt markets after reporting first quarter earnings.
Four notes totalling US$8bil were offered by Morgan Stanley, while JPMorgan sold US$6bil in two parts, according to people familiar with the matter, who asked not to be identified as the details are private.
Both firms dropped a six-year floating rate tranche during the marketing process.
The longest portion of the banks’ deals, an 11-year security, yields 1.28 percentage points above treasuries for Morgan Stanley and 1.2 percentage points for JPMorgan, the people said.
Initial price discussions for both bonds were about 1.45 percentage points.
Bank of New York Mellon, meanwhile, raised US$2.5bil in three parts.
All in, five high-grade issuers priced US$18bil in total during Monday’s session, easily surpassing the volume seen in the entire first two weeks of April as companies capitalise on a sense of calm across risk assets to sell new debt. Wells Fargo & Co, as well as Goldman Sachs Group Inc, could borrow from the bond market in he coming days.
Big banks always need fresh funds for their own lending and they typically issue debt after reporting quarterly results.
This time around, they are having to navigate fragile credit markets with limited windows of issuance and wider spreads.
Morgan Stanley and JPMorgan reported record equity trading revenue for the quarter, while Goldman’s revenue set an all-time high as Wall Street’s top banks benefitted from the turbulence ignited by President Donald Trump’s policy U-turns.
Still, executives have been taking a cautious tone during earnings calls with David Solomon of Goldman Sachs warning of the dangers under the Trump administration’s tariff policy whiplash.
“The uncertainty around the path forward and fears over the potentially escalating effects of a trade war have created material risks” to the United States and the global economy, he told investors on Monday.
Amid the fears of a downturn, banks are seeing better-than-expected revenue, in-line net interest income, stringent costs controls and most importantly little signs of credit quality weakness, JPMorgan strategists Kabir Caprihan and Vincent Barretta wrote in a note last Friday.
They predicted US$32bil of new issuance from the biggest banks post-earnings.
“We think banks are getting prepared for a weaker environment, but we highlight that current reserve levels reflect an economic environment that is much weaker than expected,” they wrote.
“We expect post earnings issuance to be relatively heavy.”
Average bank bond spreads widened to 122 basis points this last week Tuesday, the highest since December 2023, before tightening to end the week at 120 basis points, according to a Bloomberg index.
At the current level, it’s still attractive for lenders to access the market, added JPMorgan analysts.
Bloomberg Intelligence analyst Arnold Kakuda expects issuance from the Big Six to be more tempered in April following a very active January as many may have accelerated new borrowings ahead of all the policy swings.
“While banks are not immune from tariffs, their solid trading results and healthy capital buffers provide a shield versus trade wars,” said Kakuda.
Syndicate desks have slightly lowered their overall issuance projection for the week to US$20bil from US$25bil, with some companies over the weekend said to have opted to delay their capital raising efforts until after Easter as confusion on tariffs builds, wrote Bloomberg’s Michael Gambale. — Bloomberg
