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Largest U.S. Banks Bullish About M&A Despite Lackluster 2016
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Loading...The largest U.S. investment banks are bullish about ramping up revenue from mergers and acquisitions in 2017, despite lackluster deal-making during the waves of market upheaval that marked last year.
JPMorgan Chase (JPM) , which sees the groundwork for a solid year in the business, placed first in the total number of announced deals on which its advisers consulted in the 12 months through December, according to league tables compiled by The Deal, a sister publication of TheStreet. The tables ranked investment advisers on transactions of $100 million in which at least one party was based in the U.S.
Morgan Stanley (MS) came in second, Goldman Sachs (GS) third, Bank of America (BAC) fifth, and Citigroup (C) seventh. London-based Barclays (BCS) was fourth, and Zurich, Switzerland-based Credit Suisse (CS) was sixth.
In the last three months of 2016, investment-banking revenue, which includes deal-advisory services as well as underwriting of stock and bond offerings, dropped about 12% to 15% at the largest U.S. banks, reflecting challenges from the contentious U.S. elections to confusion about how Great Britain might separate itself from the European Union and stepped-up antitrust enforcement by the outgoing Obama administration.
"When you look at M&A, the most important driver is corporates looking to acquire or divest," Ken Leon, an equity analyst at CFRA Research, said in a phone interview. "A second component is related to sovereign or private equity looking to buy companies."
JPMorgan Chase advised on 117 announced transactions, according to The Deal's league tables. Revenue from mergers and acquisitions dropped 1% to $2.1 billion for all of 2016.
Morgan Stanley, which placed just below its cross-town rival with 109 deals, told investors last week that it had a healthy investment banking pipeline for the coming year. Its advisory revenue climbed 13% to $2.2 billion in 2016, partly because of a surge in the fourth quarter.
"We have grown our share in completed M&A and retained our ranking in a market that exhibited resilience in 2016," CEO James Gorman said on the company's earnings call.
Goldman Sachs, the Wall Street firm whose alumni have won several high-ranking spots in the Trump administration, captured third place with 104 announced transactions.
The New York bank closed on several deals in the fourth quarter, including, Procter & Gamble's (PG) $12.5 billion merger of its Beauty business into Coty (COTY) ; Fortis's (FTS) $11.8 billion acquisition of ITC Holdings (ITC) , and Rackspace Hosting's (RAX) $4.3 billion sale to Apollo (APO) .
Overall, the investment-banking market is "robust" Goldman CFO Harvey Schwartz, who was recently promoted to co-COO, told investors on an earnings call.
Goldman was followed by Bank of America, which ranked fifth on The Deal's league tables with 84 transactions.
The last of the major U.S. banks with a large investment business, Citigroup, ranked seventh on The Deal's tables with 64 acquisitions. The New York-based company's advisory revenue dropped 9% to $1 billion on a full-year basis.
All of the U.S. companies are poised to benefit from a shift away from investment banking by their European rivals, Leon noted. "So whether it's UBS, Credit Suisse, HSBC, or those who have problems that have to do it anyway, like Deutsche Bank, that creates an opportunity for market share gains for the large U.S. investment banks," he said in a phone interview.
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