Investment

US investment banks see early signs of revival in dealmaking

Published

1 year ago

October 28, 2023

NEW YORK, Oct 27 (Reuters) – Major Wall Street firms said a dismal year of dealmaking appears to have hit a trough, and now some companies are looking to merge, offering hope that investment banking revenues could pick up after a disappointing third quarter.

Dealogic data showed that globally, investment banking revenue tumbled 16% in the third quarter from a year earlier. But lately, bankers have been sounding more positive on the transaction pipeline after Exxon Mobil (XOM.N) and Chevron CVX.N both announced acquisitions for more than $50 billion.

Those takeovers, alongside a nascent revival in initial public offerings (IPOs), should bolster investment banking revenues next year.

“This is going to happen in fits and starts a little bit, and so not all of those discussions are going to wind up in announcements, and not all the announcements will close,” Lazard CEO Peter Orszag told Reuters in an interview. There was “definitely … some difference relative to six to nine months ago” and that for mergers & acquisitions (M&A) the “market is bottoming out,” he said.

“Client discussions have been turning more constructive over the past several months,” said Orszag, who took the helm earlier this month. The independent investment bank on Thursday missed Wall Street estimates for third-quarter profit, as its advisory business reeled from a prolonged slump in dealmaking.

Morgan Stanley’s newly appointed CEO Ted Pick, who takes up the role in January, was similarly upbeat, telling CNBC on Thursday the “forward pipeline has gotten sequentially bigger with each passing month.” He said mid cap and large-cap M&A across industry groups were “seen as the most interesting part of the next cycle.”

Pick noted that given the three- to six-month lag before deals close, the forward pipeline is the relevant indicator.

Morgan Stanley lagged its peers in the third quarter. The lethargic dealmaking disappointed investors, sending shares more than 6% lower when results were announced on Oct. 18. On Thursday, shares rose 1%.

Global investment banking revenue stood at $50 billion in the first three quarters of this year, 20% below the same period in 2022, according to Dealogic.

CONSERVATIVE PREDICTIONS

Predictions for 2024 remain conservative given an uncertain economic environment. Wild cards include U.S. interest rates, inflation and conflicts in Ukraine and the Middle East.

Investment banking revenue will probably rise 5% to 10% next year for the largest banks, according to Mike Mayo, an analyst at Wells Fargo. Still, activity will remain subdued relative to a blockbuster year in 2021.

“It remains hard to predict when deal activity will sustainably rebound,” Citigroup CEO Jane Fraser told analysts on a conference call this month. The bank advised Exxon on its acquisition of Pioneer Natural Resources (PXD.N), announced earlier in October.

“We have begun to provide more leverage finance for key clients,” and companies are becoming more active in issuing debt, Fraser said, but the IPO outlook appears more fragile.

In further evidence of deal flow, activist investors have pushed for M&A in nearly half of all campaigns tracked by Barclays this year, despite tougher financing markets.

Last week, Engaged Capital called on apparel maker VF (VFC.N), which owns The North Face brand, to consider selling non-core assets. Starboard Value recommended that News Corp (NWSA.O) spin off its digital real estate division and Jana Partners called on Frontier Communications (FYBR.O) to sell itself.

At Bank of America’s earnings, expectations were broadly steady after investment-banking fees grew 2% in the third quarter, helped by deals from bankers serving middle-market companies.

“We basically doubled the size of that team, and we’ll double it again,” CEO Brian Moynihan told analysts, without specifying staffing numbers.

In Goldman Sachs’ recent earnings CEO David Solomon was more bullish than his peers, despite largely flat investment-banking fees in the third quarter.

“If conditions remain conducive, I expect the continued recovery for both capital markets and strategic activity,” he told analysts on a post-earnings conference call.

Reporting by Tatiana Bautzer and Lananh Nguyen; additional reporting by Svea Herbst-Bayliss; Editing by by Megan Davies and David Gregorio

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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