Goldman Sachs, JPMorgan Chase, and Morgan Stanley were among the major banks reporting a slump in revenues from their investment banking divisions, which structure and consult on mergers and acquisitions.
M&A-related revenues were down 26 percent at Goldman and 24 percent at Morgan Stanley, compared to 19 percent at JPMorgan.
Trading revenues also were lower at Citigroup, Goldman, JPMorgan, and Morgan Stanley, where they were down 13 percent.
Goldman and Morgan Stanley, the two megabanks most dependent on investment banking as a source of business, were the only two big banks reporting lower revenue and profits in the first quarter.
While most of the banks also reported less revenue from trading, the drop was larger at Goldman and Morgan Stanley.
Bank of America, Citigroup, JPMorgan, and Wells Fargo all booked higher revenue and larger profits, including a 52-percent profit leap at JPMorgan.
Those four banks all deal more with retail consumers and have pocketed higher revenues from loans as interest rates have risen. At the same time, they still stint on the interest rates paid on deposits, widening their margins.
Investment banks were swamped with M&A deals through 2021 when companies were eager to snap up competitors that had stumbled during the COVID War. Special-purpose acquisition companies (SPACs) also were flying high.
Then the U.S. Federal Reserve began raising interest rates. M&As dried up and SPACs crashed, as we reported in “Post-SPAC Merged Companies Write Off $11.57 Billion” (18 Apr 2023).
M&A talks became even fewer after last month’s banking crisis, when Signature and Silicon Valley banks collapsed, Goldman CEO David Solomon said in a statement last week. He also said signs indicate deal-making might pick up again soon.
Candidates for M&As include small and regional banks dented by the sector’s recent turmoil, analysts told the WSJ.
TREND FORECAST: The M&A market will remain highly selective until interest rates begin to descend. Until then, only deals meeting specific needs of specific buyers will be done.