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Powder still dry on M&A frenzy as banks rake in record profits

·Reporter
·2 min read
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Rising inflationary pressures and a job market still recovering from the pandemic are not weighing on Wall Street’s frenzy for mergers and acquisitions, as banks reported blowout earnings.

Four giant U.S. banks said this week they had record quarters in advisory fees, as favorable market conditions spurred dealmaking.

Bank of America (BAC) saw fees jump 65% year-over-year (to $654 million). The nation’s largest bank, JPMorgan Chase (JPM), almost tripled advisory revenues (to $1.23 billion).

Morgan Stanley (MS) more than tripled its fees to $1.27 billion and Goldman Sachs (the top M&A shop on Wall Street according to Dealogic), raked in $1.6 billion — an increase of 31% quarter-over-quarter and 225% year-over-year.

Piper Sandler Managing Director Jeff Harte said that investment banking was a big reason why banks were able to easily smash the Street’s expectations in what is usually the weakest quarter of the year.

“The capital markets businesses are actually quite a bit stronger than I think we expected coming in,” Harte told Yahoo Finance Friday.

The New York Stock Exchange operates during normal business hours in the Financial District, Wednesday, Oct. 13, 2021, in the Manhattan borough of New York. (AP Photo/John Minchillo)
The New York Stock Exchange operates during normal business hours in the Financial District, Wednesday, Oct. 13, 2021, in the Manhattan borough of New York. (AP Photo/John Minchillo)

Merge now or forever hold your peace

Deal activity has picked up as companies rush to get ahead of any action from the Biden administration on a higher U.S. capital gains tax. The administration has also taken a stance against consolidation that it sees as anti-competitive, particularly in the tech and banking industries.

But it’s not just the U.S. where mergers are picking up; easy money conditions and a desire to strategically adapt to life after COVID appears to be a worldwide trend. Refinitiv data shows global merger activity picked up to a record $1.52 trillion in the three months ended Sept. 27.

The natural question is whether or not the good times will continue in the M&A market.

“With respect to deal activity, there's a lot of dry powder out there,” Goldman Sachs CEO David Solomon told analysts Friday.

Solomon added that sponsor activity in M&A appeared to be higher this quarter than in previous years, noting that the boost tends to run for a while before dropping off. Until then, the bank chief said he will “very carefully” watch trends in the space.

“It won't sustain at this pace,” Solomon said. “[There] will certainly be speed bumps along the way.”

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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