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Wall Street banks really needed dealmaking to make a comeback. It may finally be happening.
The volume of US mergers and acquisitions is up 130% so far this quarter, to $288 billion, according to data from Dealogic. Worldwide M&A is up 56%, to $453 billion.
That surge includes three major deals announced this week in the US.
Credit card lender Capital One (COF) said it would acquire rival Discover Financial Services (DFS) for roughly $35 billion. Charlotte-based regional bank Truist Financial (TFC) said it would sell its remaining $15.5 billion stake in an insurance arm. And retailing giant Walmart (WMT) confirmed plans to acquire smart TV maker Vizio (VZIO) for $2.3 billion.
The pacts could mean hundreds of millions in new fees for some of the biggest banks at a time when their traditional lending profits are expected to decline. Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C) all had a hand in at least one of the transactions.
That trend "we think will bode well for the balance of the year," Citigroup CFO Mark Mason said Tuesday at a Bank of America Securities conference.
Big banks have been waiting two years for M&A to pick back up again. Last year was supposed to be the year things turned around; instead, 2023 was the worst year for dealmaking in a decade as clients turned cautious about everything from the direction of interest rates to relations with China to the larger US economy.
Investment banking revenue at the five big banks with sizable Wall Street operations fell by an average of 9% last year. The portion of these fees tied to advice given on mergers or acquisitions declined even more, by 21% on average.
Some executives even had to walk back their talk of "green shoots" after the hoped-for surge in deals failed to materialize.
A lot is riding on a Wall Street revival that sticks in 2024. That's because banks expect to see their traditional lending income drop as demand falls and margins get squeezed. The Federal Reserve is expected to begin cutting rates at some point this year, and that could hurt the giant banks that were able to charge a lot more for their loans when rates were higher.
"Loan growth is [a] dog fight right now," Bank of America CEO Brian Moynihan said at a Bank of America Securities conference Wednesday, speaking to commercial borrowing usage by his company’s large corporate clients.
Mason, the Citigroup CFO, added a note of caution about the M&A pickup. Even though "we are seeing a significant increase in announced deals," the number of deals actually closing in the first quarter has "not been that high."