Banking industry trends: Big Banks Set to Raise Billions in Bond Issuance

Major Wall Street banks prepare for $20-$24 billion in bond issuance, capitalizing on low credit spreads post-earnings.

In a strategic maneuver that underscores the dynamic nature of the financial markets, major Wall Street banks are poised to initiate a significant wave of bond issuances, capitalizing on the prevailing ultra-low credit spreads and robust investor appetite following their forthcoming quarterly earnings reports. The six largest banks in the United States are projected to raise between $20 billion and $24 billion, a notable increase from the $15 billion typically garnered in October over the preceding decade, as indicated by financial analyst Caprihan. This anticipated influx comes on the heels of approximately $107 billion already borrowed this year at the senior holding company level, according to data meticulously compiled by Bloomberg.

While this year’s borrowing figures may appear elevated, they signify a return to a more normalized level of bond issuance, particularly since the Federal Reserve ceased its interest rate hikes last year and has recently embarked on a path of rate reductions. The necessity for fresh capital remains paramount for these financial behemoths, as they are the predominant borrowers within the U.S. investment-grade market, adeptly timing their borrowing strategies to optimize conditions.

In a preemptive move against potential market volatility surrounding the upcoming U.S. elections in November, these banks are seizing the opportunity presented by borrowing costs that hover near a 20-year low, buoyed by strong demand from investors. Analysts estimate that the "Big Six" will successfully execute at least $15 billion to $20 billion in bond sales.

The customary practice among banks is to issue debt subsequent to the announcement of quarterly results, which will commence on Friday morning with the reports from JPMorgan and Wells Fargo & Co. Following closely, Bank of America Corp., Citigroup Inc., and Goldman Sachs Group Inc. are slated to disclose their results on Tuesday, with Morgan Stanley rounding out the week on Wednesday.

Moody’s Ratings anticipates that these major banks will report robust trading revenues for the third quarter, alongside notable improvements in investment banking activities compared to the same period last year. This positive outlook is attributed, in part, to record levels of corporate debt issuance and a resurgence in equity issuance.

Market participants will be particularly attentive to projections concerning full-year net interest income—an essential metric that reflects the differential between the interest earned on loans and the interest paid to depositors. As this figure constitutes the primary revenue source for traditional lenders, any insights into potential performance in 2025, especially in light of the Fed's anticipated continued rate cuts, will be of paramount importance.

Nevertheless, the broader banking sector is not without its challenges, particularly for smaller institutions with exposure to commercial real estate. The proportion of banks facing negative ratings outlooks has increased, following a series of adverse actions last year amid a wave of regional bank failures, as reported by S&P Global Ratings. Despite these concerns, the majority of banks maintain stable outlooks, bolstered by regulatory tightening that has emerged in the wake of the regional banking crisis, which has ultimately proven to be a credit-positive development.