Wall Street’s revenue from global merger-and-acquisition activity is down 22% year to date from the same period in 2011, while its backlog of future revenue from dealmaking has declined 24% to the lowest year-to-date level since 2005, according to Dealogic.
The strain of Europe’s debt crisis and persistent concerns about the U.S. economic recovery have tossed cold water on an M&A market that looked as though it was heating up early last year.
Several bankers have commented on challenging times in recent days. Goldman Sachs Chief Executive Lloyd Blankfein, appearing Tuesday on MSNBC, said “The economy is not horrible, it’s just not growing the way it should and there’s just a lot of uncertainty.”
That is keeping dealmakers on the sidelines. Over all, transactions valued at $5 billion or more are down two-thirds from the 2007 market peak, noted Greenhill Chief Executive Scott Bok in an investor presentation June 7, speaking of broad industry trends. One-billion-dollar-plus transactions are down by roughly one-half, and $100 million-plus deals are down by one-third, he said.
The second quarter is on track to be the fourth-consecutive quarter in which the volume of announced deals is down relative to the prior year’s quarter, Bok said in the presentation. “There’s no denying that we’re in a very challenging business environment.”
As of Wednesday, Wall Street’s revenue backlog, which includes potential revenue from deals announced but not yet completed in the last two years, was $5.9 billion, down from last year and close to the low of $5.8 billion posted in 2005, Dealogic said in a report. That is well off its recent peak of $14 billion hit in June 2007.
Global merger revenue is at $7.1 billion for the year to date, down from $9.1 billion in the same period last year.
Goldman Sachs leads the backlog ranking, with $640 million in revenue from pending deal closings. Morgan Stanley has a revenue backlog of $452 million, while J.P. Morgan has $406 million in revenue backlog, Dealogic said.
Lower banking revenue combined with expected declines in trading and underwriting fees are prompting analysts who follow the big Wall Street banks to slash their second-quarter earnings estimates.