'Green Shoes' Appears... Wall Street's Top Two Say "Frozen Market Enters Recovery Phase"

Top Wall Street CEOs from Goldman Sachs and Morgan Stanley have issued economic forecasts indicating that "green shoots"?signs of recovery in a stagnant economy?are beginning to appear in the investment banking (IB) sector. This suggests that the IB industry, which has faced its worst-ever downturn due to the direct impact of aggressive tightening, is showing signs of shaking off its slump and starting to revive.

Morgan Stanley: "The Bottom Has Already Been Reached"

On the 12th (local time), James Gorman, CEO of Morgan Stanley, stated at Morgan Stanley’s annual U.S. Finance, Payments, and Real Estate Conference, "My intuition tells me that the IB market has already hit bottom. I think the situation has improved significantly." He added, "We are definitely seeing more green shoots," and "I have been talking with many CEOs."

James Gorman, Morgan Stanley CEO.
Photo by Reuters Yonhap News

CEO Gorman announced that there are no further plans for layoffs. Wall Street has experienced its worst recession ever due to the aggressive tightening that began last year in the U.S. Particularly, Morgan Stanley and Goldman Sachs, which heavily rely on IB performance, saw their quarterly earnings plunge, leading to large-scale restructuring involving thousands of job cuts.

Regarding recent layoffs, CEO Gorman said, "I can’t say for certain, but I don’t think we will return to that world," adding, "The current headcount is at the level we want." He further stated, "There will be no more large-scale layoffs." Morgan Stanley conducted a second round of layoffs last month, cutting 3,000 global employees (about 5% of total staff), just five months after laying off 1,600 to 1,800 employees (about 2% of total staff) in December last year. The layoffs are expected to be completed by the end of this month.

CEO Gorman predicted that the U.S. Federal Reserve’s monetary policy stance will change starting next year. While he sees a low likelihood of the Fed cutting interest rates this year, he explained, "At some point in 2024, interest rates will start to decline and stabilize at around 2-3%."

Goldman Sachs: "Market Will Revive Next Year"

On the same day, David Solomon, CEO of Goldman Sachs, also diagnosed signs of improvement in the IB business environment. In an interview with CNBC, he said, "We are seeing green shoots in the previously stagnant market," adding, "Ultimately, people need capital, and they cannot postpone that indefinitely." He analyzed, "It takes 4 to 6 quarters for a slowed capital market to revive, and we are now in the fifth quarter."

David Solomon, CEO of Goldman Sachs. [Image source=AP Yonhap News]

CEO Solomon expects capital market activity to revive as we enter next year, citing the recent uptick in the struggling U.S. initial public offering (IPO) market as evidence. On that day, the restaurant chain ‘Kkaba,’ which was conducting a book-building process for listing on the New York Stock Exchange (NYSE), saw demand surge, leading to upward adjustments of both the lower and upper ends of its IPO price range.

According to S&P Global Market Intelligence, the number of global IPOs last year was 1,671, about half of the previous year’s 3,260. During the same period, the amount of capital raised through IPOs in the global market was $179.73 billion, less than one-third of the previous year’s $626.56 billion. Due to the shift to aggressive tightening policies worldwide last year, liquidity dried up, shrinking the market to its smallest size in 20 years.

However, CEO Solomon forecasted, "Even if the United States, the world’s largest economy, avoids a recession, it will continue to face a challenging environment marked by low growth and the lingering effects of high inflation."

This content was produced with the assistance of AI translation services.