Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Here’s one place big banks are catching a break

Lew defends his inversion rules, suggests more may come

Wall Street's biggest banks have at least one thing to be thankful for in 2016.

The trend of smaller, private banks, also known as boutiques, gobbling up more and more revenue from mega-transactions finally may be reversing.

About one-third of the way into 2016, the percentage of cash earned on mergers and acquisitions by boutique banks is down to 17.6 percent, from an all-time high of 19 percent last year, according to Dealogic data. Boutique banks' share of deals was as little as 8 percent in 2008, and has shot up in the years following the global financial crisis.

So far in 2016, the boutique banks leading the way on M&A revenue are Centerview Partners, Evercore Partners and Moelis & Co., according to Dealogic. But those banks are leading in a year where there's a lot less to be made on fewer M&A transactions. None of the banks commented after being contacted by

David Jenkins | Robert Harding | Getty Images

Worse still, the pain may only be beginning at boutique advisers. Because boutiques claimed a bigger portion of revenue from inversion deals like Pfizer and Allergan, the banks stand to lose out on their stake in hundreds of millions of dollars in revenue from enormous international transactions.

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While big investment banks stand to lose out more, in dollars, than boutiques should Treasury Department efforts to squash inversion deals succeed, it's the little banks that would lose a greater piece of their overall revenue. Inversions occur when U.S.-based companies use M&A deals to change their domiciles to countries that have lower tax rates.

Treasury Secretary Jack Lew said inversion rules won't be enforced retroactively, but losing out on a growing business for Wall Street banks represents an especially big hit to boutiques.

"It impacts them disproportionately," said Jeffrey Nassof, vice president of consulting services at Freeman & Co. "They have a smaller revenue base and no other capital markets business."

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Looking at the 24 M&A transactions of $10 billion or more that closed in the year ending in 2016's first quarter, 17 of those involved boutique banks, Nassof said. Despite Lew's statement that Treasury's inversion rules will be forward looking, it's possible that other deals still in limbo could collapse next.

One banker, at a prominent boutique who asked to not be named, aimed to put a positive spin on a slow year for M&A.

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"The financing market earlier in the year killed it," he said of the dearth of deals, adding that he's expecting a rebound in activity. "Deal volume is dramatically down."