NEW YORK: Wall Street banks struck an optimistic tone on investment banking activity, citing robust deal pipelines and continued client engagement, even as rising bond yields and market volatility threaten to delay transactions.
Top banking executives said this week the environment for investment banking remains solid as businesses look to get deals done, with strategic dialogue inside corporate boardrooms remaining active.
“Given the rate selloff, you’re going to have the market take a little bit of a breath and a pause to make sure buyers and sellers can meet on valuation terms. We did see a little bit of that slowdown in the second half of September,” JPMorgan chief financial officer (CFO) Jeremy Barnum said.
“Big picture, I would lean more on the side of delayed rather than cancelled. There are a lot of deals that need to get done that want to get done.”
Investment banking fees rose across most major US banks in the third-quarter (3Q), with Bank of America emerging as the outlier.
“It’s a solid pipeline. The United States is the centre of the action for both advisory and capital markets. We’re seeing a bit of pickup in Europe and Asia, but a lot of this is about the United States,” Citigroup chief executive officer (CEO) Jane Fraser said.
The overall sentiment for dealmaking is constructive, Fraser said, pointing to continued capital expenditure and elevated strategic discussions among clients.
From tariffs to the conflict in the Middle East, Wall Street’s investment banking machine has navigated several roadblocks over the past year and so, prompting brief bouts of caution but none have proved enough to derail the dealmaking recovery.
“Strategic investors have resumed discussions for deals over the last weeks,” said Morgan Stanley CFO Sharon Yeshaya.
Goldman Sachs CEO David Solomon also said companies were comfortable with the regulatory environment for dealmaking.
“I don’t sense that people are sitting on the sidelines because of the midterms.”
Despite strong deal pipelines, Wall Street analysts remain cautious about near-term investment banking activity as higher borrowing costs and valuation uncertainty threaten to delay transactions.
Global M&A volumes fell 41% from the prior three months to US$993bil in 3Q, falling below US$1 trillion for the first time since 2Q of last year as the number of megadeals shrank, LSEG data showed.
US initial public offering (IPO) activity has lost momentum since the summer, as volatile markets and valuation concerns make investors more selective and complicate plans to go public.
A string of postponements by high-profile hopefuls, including nuclear technology company Holtec and smart ring maker Oura, has weighed on the IPO market.
SoftBank-backed SB Energy has also delayed launching its US IPO roadshow.
“Things got a little bit softer in September. The IPO market was wide open. It’s just if you expected a valuation and you got something 10% to 15% less,” Solomon said.
Morgan Stanley’s Yeshaya said that transactions may come back when companies are comfortable with new valuations.
The IPO window has also narrowed, with biotech among the few sectors still drawing interest as investors become more selective in a higher-rate environment. — Reuters
