Morning Coffee: It's a great time to be an M&A banker. Bond trader? Not so much
With mergers-and-acquisitions activity at a record-breaking fever pitch, it’s indisputable that 2015 has been a great year to be an M&A banker. Many expect that to be the case in 2016 as well, while others aren’t so sure.
This year set the record year for M&A dealmaking, with $4.2 trillion of transactions pending or completed, according to Bloomberg.
There were eight transactions in 2015 that exceeded $50bn, which is another record.
That means that M&A specialists at the top investment banks are likely to receive meaty bonuses for their efforts this year. But how long will the salad days last?
There’s some concern because the two previous high-water marks for global M&A volumes, 2007 and 2002, experienced stomach-churning corrections the following year.
For now, though, business is quite good. The top three financial institutions in terms of the value of M&A deals that they worked on in 2015 are all headquartered in the U.S. Goldman Sachs advised on $1.41 trillion worth of deals, topping the league tables and setting an all-time firm record. Morgan Stanley advised on $1.37 trillion worth of deals, good for second place globally, while JPMorgan advised on $1.30 trillion worth of deals this year to secure third place.
More broadly, U.S. banks earned $35.6bn of the $72.7bn in fees for equity and debt deals, syndicated loans, and M&A transactions from January 1 through December 17, according to Dealogic.
That’s a whopping 49% of global investment-banking fees this year, the biggest slice of the global pie since 2002. Six of the top 10 banks in the world by investment-banking fees are US-based institutions, including the entire top five.
Across the pond, the outlook isn’t quite so sunny.
European banks earned a 30% share of global investment banking fees, a record low. The fee pool in the U.S. was $35.2bn year-to-date as of Dec. 17, per Dealogic, compared to $17.7bn in fees in Europe and $13.6bn in Asia over the same time period.
Still, regardless of where you’re located, at the moment it’s better to be an M&A banker than a fixed income trader.
For a start, the high-yield bond space is undergoing a “retrenchment.”
Of considerably more concern is the U.S. Securities and Exchange Commission’s increased scrutiny of securities trading related to mortgages and auto loans. Wall Street’s main regulator has uncovered an unhealthy number of red flags – from huge, eyebrow-raising price mark-ups on bond sales to shady kickbacks for middlemen brokers – representing billions of dollars in fixed income trades.
John Cryan was recently tapped to serve as Deutsche Bank’s co-CEO and has already pledged to shrink its investment banking activities. Now DB is set to slip to third place on the annual league tables of banks that handle the most European bond sales.
Just last month, European banks announced more than 30,000 job cuts, including 11,000 at Deutsche Bank, 15,000 at Standard Chartered and 5,600 at Credit Suisse, according to Bloomberg.
Hopefully, M&A bankers will spread Christmas cheer by picking up the bar tab for their downtrodden fixed income colleagues.
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