(Bloomberg) -- After more than a year in the dealmaking doldrums, Wall Street giants are finally seeing signs of life in their capital-markets businesses.

Bank of America Corp., Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. all beat analysts’ expectations for equity-underwriting revenue in the second quarter, with all but Citigroup earning more than they did a year earlier from that business. The biggest banks — again with the exception of Citigroup — also surpassed estimates for debt underwriting.

“It feels as though things are getting better and the signs are encouraging,” Morgan Stanley Chief Financial Officer Sharon Yeshaya said in an interview Tuesday. The backlog is building and “it sets us up for a better 2024.”

The positive news, along with a surprise fixed-income trading gain at Bank of America and upbeat comments from Morgan Stanley executives, helped lift the shares of financial firms large and small, including PNC Financial Services Group Inc., Bank of New York Mellon Corp. and Charles Schwab Corp., which also reported results Tuesday. The KBW Bank Index climbed as much as 2.8% to its highest intraday level in three months.

Investment-banking revenue has whipsawed in recent years. Fees from underwriting and dealmaking soared during the pandemic, fueled by low rates and government economic stimulus, then nose-dived last year after the Federal Reserve began hiking interest rates to combat persistent inflation. 

At Morgan Stanley, the increase in debt-underwriting revenue was primarily driven by higher investment-grade bond issuance, the New York-based bank said, while the equity-underwriting increase was the result of more follow-on and convertible offerings.

Citigroup Chief Executive Officer Jane Fraser on Friday described a similar phenomenon at her bank. “Globally, we’re seeing less anxiety around funding, as most large corps are biting the bullet and paying higher rates to take advantage of issuance windows,” she said. Similarly, Jefferies Financial Group Inc. management talked late last month of “green shoots” emerging in its investment-banking and capital-markets business.

Still, Wall Street leaders aren’t calling it a comeback just yet. Mergers-and-acquisitions activity remains slow, with advisory revenue at Bank of America, Morgan Stanley, JPMorgan and Citigroup dropping 24% from the second quarter of 2022, when revenue was already down 16% from a year earlier. 

Most firms have been trimming their workforces to adjust, including during the most recent quarter. Bank of America CFO Alastair Borthwick described his firm’s efforts to shrink headcount through attrition rather than major job cuts as “good work.” Morgan Stanley’s results Tuesday included $308 million in severance costs, with the bulk of that tied to its institutional-securities unit that includes trading and investment banking.

“It’s a little too early to call a trend there based on recent results, but we’ll see,” JPMorgan CFO Jeremy Barnum said on Friday. The biggest US bank has seen “encouraging signs of activity in capital markets,” he said, but there are “still definitely some headwinds in M&A.” 

Goldman Sachs Group Inc. is scheduled to report its second-quarter earnings Wednesday. Analysts are expecting the firm’s equity-underwriting revenue to double from a year earlier, to $292 million, while debt underwriting may dip 2% to $446 million. Revenue from advising on M&A transactions, meanwhile, is poised to slump 35%.

--With assistance from Sridhar Natarajan, Jenny Surane and Katherine Doherty.

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