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Top Wall Street bankers are being careful not to overhype M&A revival

Mergers and acquisitions are seeing a resurgence so far in 2024, but some of the top bankers on Wall Street are being careful not to overhype the dealmaking revival.

Goldman Sachs (GS) CEO David Solomon said Tuesday at a UBS financial services conference that "it's gotten better" compared with "super anemic" activity during parts of 2022 and 2023.

However, Solomon does not expect investment banking to climb back to historical averages over the last decade.

FILE PHOTO: Goldman Sachs chairman and CEO David Solomon speaks during Goldman Sachs analyst impact fund competition at Goldman Sachs Headquarters in New York City, U.S., November 14, 2023. REUTERS/Brendan McDermid/File Photo
Goldman Sachs CEO David Solomon. REUTERS/Brendan McDermid/File Photo (Reuters / Reuters)

JPMorgan Chase (JPM) chief financial officer Jeremy Barnum also poured some cold water on dealmaking expectations, acknowledging "some momentum" while also citing headwinds from lingering geopolitical uncertainty and aggressive antitrust scrutiny from Washington.


"Not the most conducive" M&A environment, he said at the same UBS financial services conference in Key Biscayne, Fla.

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.

Deals are picking up significantly compared to this time last year, according to data provider Dealogic. The volume of US mergers is up 134% so far this quarter as of Tuesday morning compared to the same period last year.

That surge includes a string of major deals announced in the US, including three last week amounting to $53 billion. The headliner was credit card lender Capital One (COF) saying it would acquire rival Discover Financial Services (DFS) for roughly $35 billion.

Capital One headquarters in McLean, Virginia on February 20, 2024. US banking giant Capital One announced on February 19, 2024 that it will acquire financial services company Discover in a $35.3 billion all-stock deal combining two of America's major credit card firms. (Photo by Brendan SMIALOWSKI / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)
Capital One headquarters in McLean, Va. (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images) (BRENDAN SMIALOWSKI via Getty Images)

These pacts could mean hundreds of millions in new fees for some of the biggest banks. Morgan Stanley (MS), Goldman, JPMorgan, Bank of America (BAC), and Citigroup (C) all had a hand in at least one of the transactions.

No firm stands to benefit more from a revival than Goldman. Profits were down 24% in 2023 due to the dealmaking slowdown and costs associated with the company's high-profile exit from consumer lending.

Its full-year net income of $8.52 billion was the worst mark for Goldman since 2019, Solomon's first full year in charge. The firm did, however, post a sizable gain in the fourth quarter as equities trading and wealth management rose.

Earlier this month, Goldman’s board of directors awarded Solomon a 24% pay increase despite the challenging year. Solomon took home $31 million.

"I think we're going to see a better operating environment for our core business. That doesn't mean every quarter, every minute, but I think we've seen it already," said Solomon.

"I feel great about the way that the firm’s positioned. I feel great about our client franchise, and I think we're going to continue to deliver good returns for shareholders," he added.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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