The AI debt surge that banks feasted on
If it feels like every other debt deal is tied to data centers and compute, that's because issuers funding AI buildouts have sold more than $400 billion this year. All that paper boosted activity for fixed income desks as investors scrambled to take it down. Guggenheim Investments recently wrote that tech and hyperscalers now make up more than 20% of the investment grade index composed of bonds with maturities of at least 10 years, and Apollo Global Management estimates nearly 40% of new issuance is tied to AI. Translation: tech heavy bond flow rewarded the firms most plugged into these transactions.
Where Bank of America fell behind
People familiar with the matter say Bank of America is still behind peers in corporate debt even as it works to deliver on a plan to put $250 billion to work in critical US infrastructure through the middle of next year, including digital infrastructure like data centers and compute power. Because the bank wasn't as dominant in this pocket, its credit traders found it harder to benefit from the trading that followed. Weakening activity in municipal bonds and other rates products added to the pressure, helping explain CEO Brian Moynihan's view last week that third quarter trading revenue will be roughly flat.
"We're not as well positioned in some of the businesses that had more activity," he said, referring to the investment banking franchise, and noted that revenue there is also projected to decline. Bank of America declined to comment through a spokesperson.
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As recently as last year, top executives were skeptical that AI ventures with big spending needs and losses could keep going at that clip. The bank has shifted its approach: earlier this year it provided OpenAI with a $520 million lending facility, and in April it arranged the sale of $14 billion in bonds linked to a large Oracle Corp. data center in Michigan, with Pacific Investment Management Co. buying about $10 billion. Still, the ramp is taking time. In the third quarter, the bank wasn't on some of the biggest corporate bond deals, including the $3.9 billion high grade issue from Blackstone Inc.-backed QTS Realty Trust Inc. So far this year, it ranks third in managing US investment grade issuance and third in high yield, trailing peers such as JPMorgan Chase & Co. and Morgan Stanley. Moynihan also noted slower financing activity this year, particularly in the Asian prime brokerage business, even as he called the investment banking pipeline "very strong."
Trading outlook splits Wall Street
Moynihan told investors, "On sales and trading, it'll be one of the better third quarters we've ever had but it'll be relatively flat." Goldman Sachs Group Inc. CEO David Solomon offered a similar setup, saying fixed income is running softer than an equities business he called "very strong." Others see more upside: JPMorgan Chase & Co.'s Doug Petno said third quarter trading revenue is expected to rise by a percentage in the mid to high teens, while Citigroup Inc.'s chief financial officer projected mid single digit growth from a year earlier.
Keep in mind, last year's third quarter wasn't a pushover for Bank of America. Equity trading climbed 14% and fixed income rose 4.6%, making the current period a tougher comparison. If the firm can eke out a gain this quarter, which still has a few weeks to run, it would mark a 17th straight period of trading growth. As Moynihan put it, "We're in a dogfight for it."
Why it matters for your money
AI is reshaping which banks collect the fees and the follow-on trading, and Bank of America is trying to play catch-up while the music's still on. The stakes show up in near term trading revenue and in who wins the financing mandates for data centers and compute. If the bank's pivot translates into more deal roles, that can feed trading and fee income in later quarters. For investors, the tell will be whether that 17 quarter run stays alive and how quickly AI-linked financing shows up in results that can move your portfolio.
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