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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dear reader,
Sometimes, it turns out, bankers do know what they’re talking about.
In January, I questioned the talk about “green shoots” in dealmaking by US banking bosses. (In fairness, they’d been saying the same thing six months before and it had come to nought).
Three months later and it feels somewhat different. Morgan Stanley’s chief executive Ted Pick this week argued that the “existential” need for dealmaking from companies was starting to usher in a recovery in investment banking.
This time, it is backed up by some numbers. Investment banking fees at Morgan Stanley were up 16 per cent in the first quarter compared with a year previously. And that pick-up was in evidence across Wall Street. Across the five biggest US banks, revenues in equities and fixed income were unspectacular year on year (up 6 per cent and down 3 per cent respectively) but investment banking was up almost 29 per cent, according to consultancy Oliver Wyman.
This is good news for Goldman Sachs, the purest investment bank on Wall Street and the one most geared to the deals cycle. Its investment banking revenues rose by a third. The Lex column thinks that, after a difficult couple of years, the bank finally feels comfortable in its own skin again. (Read the piece here).
There is still some reason for caution here — and not just because of the classic caveat that dealmakers’ animal spirits often destroy value. (And on the subject of dubious combinations, see the “iconic partnership” that produced the Barbiecue sauce, more on which below).
For a start, the greatest “existential” need for dealmaking seems to be coming not from corporates seeking to overhaul their supply chains (as Pick suggested) but private equity groups needing to overhaul their liquidity and returns outlook.
Blackstone president Jonathan Gray warned this week that it would take time for firms to return cash to investors, as the sector continues to sit on record amounts of unsold assets. Separately, Lex this week looked at the woes of Princeton University’s endowment in private equity, with its chief calling this the “worst environment ever” for private markets in terms of liquidity. (Read it here).
Second, these year-on-year figures just reflect the depths we’ve plumbed in an unusually deep and protracted deals slump. The outlook for interest rate cuts is in flux — delaying one fillip for large-scale dealmaking. Meanwhile, the shift in the macro outlook combined with geopolitical tensions is rattling equity markets too. Together, these may cap this revival in the near term.
Third, this looks like a US recovery for the time being. That’s not unusual, says Oliver Wyman’s Christian Edelmann. The US tends to be first in line when it comes to a pick-up in activity, something that may be exacerbated this time by its economic performance and the effects of the Inflation Reduction Act.
But it will be interesting to see if the European banking sector lags behind with regards to feeling the benefits of a dealmaking pick-up. About 15 percentage points in terms of investment banking market share has shifted from Europe to the US since the last big recovery after the financial crisis. (Lex this week wrote about European banking and the sector’s bid to be deemed “strategic”. Find out more here).
In the first quarter of the year, according to the London Stock Exchange Group, the Americas accounted for 54 per cent of investment banking fees globally (compared with 47 per cent for all of last year, a figure that was similar in the first quarter of 2023). Americas fees were up 15 per cent year on year, in contrast to sharp falls in Asia and a flat outcome in Europe, the Middle East and Africa. It is something to watch for as the European reporting season for banks kicks off in earnest next week.
Quick links
Some of the Lex column’s output this week:
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Swifties — as Taylor Swift fans are called — are a force to be reckoned with, as Live Nation is finding out.
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A swift demise is better than a slow one. That would certainly be true for Thames Water.
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ASML’s poor first quarter was felt throughout the chip sector this week. But it is hard to think of a sector with stronger secular tailwinds than computing power.
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Any up-and-coming pop star knows: it is tough to break America. But Amundi, with aspirations to be Europe’s BlackRock, is giving it a try.
Things I’ve enjoyed this week
I have mainly been readjusting to having a kitchen after a period of building work, including rediscovering the excellent Rukmini Iyer books. This weekend, I will attempt the dal recipe of my colleague Anjli Raval, which she wrote about here. She says you can’t screw up dal. I beg to differ.
Via Today in Tabs, I discovered that Mattel and Heinz are teaming up to launch a Barbiecue sauce. I generally object to these attention-seeking, limited-edition product launches. I tried and failed to find out how many units of condiments are sold in the UK each week, but 5,000 bottles of this pink creation sounds like a pointlessly small number.
But I went with it because a) it gave me an interesting picture to use at the top of a newsletter that is in effect about bankers and b) this “pink vegan mayo with BBQ sauce” gives me fond flashbacks to Mayo-gate, when investor Terry Smith launched a scathing attack on Unilever over its purpose-driven mayonnaise.
Look away now, Tel. Kraft Heinz says it is “driving transformation . . . inspired by our Purpose, Let’s Make Life Delicious”.
Have a tasty weekend,
Helen Thomas
Head of Lex
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