Reuters reports that the four biggest US investment banks (Bear Stearns, Goldman Sachs, Lehman Brothers and Morgan Stanley) are set to report an average 41% increase in profits in the final quarter. According to Wachovia Securities analyst Doug Sipkin, the last few weeks of 2006 are likely to be 'one of the strongest quarters on record'.
Stock underwriting has risen significantly in the final period, M&A pipeline is at record levels, IPOs seem to be on a roll and debt underwriting has been helped by the leveraged buyout boom. Expect trading profits to come in higher this quarter too. As Reuters says, for the full year, 2006 looks sets to see 'the big four' US firms bringing in profits of $22bn - equal to the gross domestic product of Lebanon or Sri Lanka.
Top of the heap, of course, is bound to be Goldman. It's share price has risen from $150 to $200 since September, and CIBC has now stuck a target price of $250 on it.
Staff at many firms were concerned that the fourth quarter might spoil their big bonus party, but there's no chance of that now (the US four, in any case, have already closed their books for the year). If, as expected, the fourth quarter comes in strong all round, it will round off a great year for the financial markets industry. Let's keep our fingers crossed for 2007.