Mergers and acquisitions have been making a comeback since the start of 2024, but some of Wall Street's top bankers are careful not to over-exaggerate the resurgence in deals.
Goldman Sachs (GS) CEO David Solomon said Tuesday at the UBS Financial Services Conference that “things are looking better” compared to some “super anemic” activity in 2022 and 2023. “
But Solomon doesn't expect investment banking to return to its historical average of the past decade.
JPMorgan Chase & Co. (JPM) Chief Financial Officer Jeremy Burnham also cited headwinds from lingering geopolitical uncertainty and increased antitrust scrutiny from Washington, saying he expects to see “some momentum.” While admitting this, he poured cold water on hopes that the deal would be completed.
The M&A environment is “not the most favorable,” he said at the same UBS Financial Services Conference in Key Biscayne, Florida.
Big banks have been waiting two years for M&A activity to pick up again. Last year was supposed to be the year things got better. Instead, 2023 was the worst year for deal-making in a decade, as clients became cautious about everything from the direction of interest rates to relations with China to the overall U.S. economy.
Investment banking revenue for the five largest banks with large Wall Street operations fell by an average of 9% last year. The portion of these fees related to advice on mergers and acquisitions declined even more, by an average of 21%.
Some executives had to walk back their statements about “green shoots” after the expected surge in deals did not materialize.
Many movements are riding on the revival of Wall Street, which is here to stay until 2024. Banks expect traditional loan income to decline due to lower demand and squeezed margins.
The U.S. Federal Reserve is expected to start cutting interest rates at some point this year, hurting big banks that were able to sharply increase loan amounts when interest rates were higher. there is a possibility.
Data provider Dealogic says transactions are up significantly compared to this time last year. The number of U.S. mergers this quarter was up 134% as of Tuesday morning compared to the same period last year.
The surge includes a series of big deals announced in the U.S., including three deals totaling $53 billion last week. The highlight was the announcement by credit card lender Capital One (COF) that it would acquire rival Discover Financial Services (DFS) for about $35 billion.
These agreements could cost some large banks hundreds of millions of dollars in new fees. Morgan Stanley (MS), Goldman, JPMorgan, Bank of America (BAC), and Citigroup (C) were all involved in at least one transaction.
No company stands to benefit more from the resurgence than Goldman. Profits fell 24% in 2023 due to a slowdown in trading and costs associated with the company's high-profile exit from consumer lending.
Full-year net income of $8.52 billion was Goldman's worst performance since 2019, the first time Mr. Solomon took over for a full year. However, the company posted strong profits in the fourth quarter due to increased stock trading and asset management.
Earlier this month, Goldman's board gave Mr. Solomon a 24% raise despite a difficult year. Solomon took home $31 million.
“I think the operating environment for our core business will improve. I don't mean every quarter, every minute, but I think we're already seeing it,” Solomon said.
“We feel great about our company's stance. We feel great about our customer franchise and think we will continue to deliver good returns to our shareholders,” he added.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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