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June 27, 2013 6:30 pm
US investment banks are returning with a vengeance. After more than a decade in which European rivals chipped away at their market share in advisory and capital markets, US banks are reasserting their global supremacy.
Compared with the full year of 2012, US banks’ share of the global investment banking fee pool rose 3 percentage points to 46 per cent in the first six months of this year, according to Thomson Reuters. The last time this level was exceeded was 12 years ago.
Once again, the global market for deal advisory as well as equity and debt raisings is dominated by five US bulge-bracket operators: JPMorgan, Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley and Citigroup.
This is to a large extent driven by a domestic market characterised by a robust economy and much more buoyant capital markets than in Europe. “This is the new US moment,” says Christian Meissner, head of global corporate & investment banking at BofA Merrill Lynch.
“The relative size and scope of overall US deal activity are higher than they have ever been and at the same time a lot of the market liquidity comes from the US.”
A look at the overall fee pool illustrates this. In Europe, fees paid by clients such as industrial companies and institutional investors for helping them to acquire rivals and raise equity capital or a bond have reached $8bn in the first half of the year, a 6 per cent increase. But at $17.9bn, the fee pool across the Atlantic is double that number and it is growing at twice the pace.
European banks, be it UBS or Barclays, Deutsche Bank or Credit Suisse, have been distracted by a period of regulatory changes, business restructurings and political pressure to cut back in investment banking.
Some bankers say this has taken some of the overcapacity out of the market after some have exited whole areas and others concentrate on fewer sectors and geographies. At the same time, at least some US banks have held steady on their London and other European operations.
Vis Raghavan, JPMorgan’s head of banking in Europe, the Middle East and Africa, says: “It’s been a pattern for a period of time and is a function of investments made by a lot of US banks in Europe. It’s a sustained strategy and we have stood by the market through good times and bad.”
While most Europeans are struggling more than ever to compete on Wall Street, their US competitors have gained on their rivals’ home turf. US banks have increased their European market share by 4 percentage points to 30 per cent year to date, according to Thomson Reuters.
Globally, the fact that most of the largest deals are originating from their home market is also playing into the hands of the large US banks. In general, such big deals – between $2bn and $10bn – accounted for about a third of global mergers and acquisitions in the second quarter – the highest quarterly share since the beginning of 2011.
A rise in domestic M&A is giving advisers hope. Charlie Jacobs, M&A partner at Linklaters, says: “There has been less cross border M&A so far this year, which is a sign of conservatism still prevailing. But some sizeable domestic deals have occurred, especially in the US, which has bounced back quicker.”
Bankers say activity has died off in recent months and that there is a common theme between deals that are being done. Wilhelm Schulz, head of Emea M&A at Citi, says: “The deals that are happening are not expansionary, they are defensive in nature.
“They must happen to fix business models in selected industries. These ‘must-do’ transactions will provide a floor for M&A activity.”
Johannes Groeller, co-head of M&A for Emea, Morgan Stanley says the heightened activity is in healthcare, industrials and telecoms. Advisers believe shareholders are becoming more receptive to dealmaking.
Hernan Cristerna, global co-head of M&A at JPMorgan, says: “There’s more and more evidence that the market is prepared to reward deals that make strategic sense. A lot of companies have been driven by shareholder demands to return cash. We’re advising our clients, that as a CEO you need to make a case to shareholders and explain why an acquisition makes strategic sense.”
The key to a recovery in dealmaking remains confidence. Paul Parker, global head of M&A at Barclays, says: “We will see more meaningful M&A but companies are less likely to pull the ripcord until the economic and regulatory environment settles.”
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