Even with slowing economies and a challenging credit market environment, investment bankers at Goldman Sachs are optimistic about a second-half dealmaking upswing.
In the wake of an investment banking slump last year when M&A activity fell by 36 percent from a record $5.91 trillion in 2021, according to data from Dealogic, dealmakers at Goldman Sachs are readying themselves for a recovery in the second part of the year, a survey conducted by «Reuters» found.
Several senior Goldman Sachs bankers interviewed by «Reuters» indicated the underpinnings for increased dealmaking are in place, with investors currently hoarding cash and waiting for the right moment to deploy it.
«When the financing market comes back, we don't know when it will happen, but it will happen because of the amount of liquidity in the system, we think transaction volumes will and activity will recover,» Mark Sorrell, the firm's global co-head of M&A told the news outlet.
Tighter Monetary Conditions
Central banks including the Federal Reserve, European Central Bank, Bank of England, and Swiss National Bank have been hiking interest rates to tame inflation. While economists expect rates will continue to rise, many expect the policy to loosen by the end of this year or early next, which plays into the scenario of the Goldman bankers.
«I remain quite bullish, maybe not on the first quarter, but certainly as we go forward,» said Stephan Feldgoise, the other global M&A co-head. Still, there are «clear headwinds in the first part of 2023,» he said.
Good News for Credit Suisse
Increased M&A activity will be welcome by Credit Suisse which saw its investment banking division lose 640 million Swiss francs ($653 million) in the third quarter, dragging the bank to its fourth consecutive quarterly loss, as finews.com reported.
Revenues and fees at the world's ten largest investment banks more than halved in 2022, with overall, fees from acquisitions and mergers weakening to $31.8 billion, according to a «Financial News» (behind paywall) report citing preliminary data from Dealogic. Compared to the bumper year of 2021, that's $34 billion less.
The most significant slump among the major investment banks was suffered by Credit Suisse with a decline of 58.4 percent to $1.8 billion.
At Credit Suisse, the investment bank will be spun off into the new «CS First Boston» unit, reviving a brand name it bought in the 1990s. It will be headed by former Citigroup investment banker Michael Klein, with a focus is to create a «capital light» business, where the emphasis is on advice.
The Recovery
«When the financing market comes back, we don't know when it will happen, but it will happen because of the amount of liquidity in the system, we think transaction volumes will and activity will recover,» Sorrell said.
When the recovery comes, the cheering will certainly be loud at the investment banks, with perhaps the loudest coming from Credit Suisse.
