Wall Street is having a bad deal year thanks to Washington
A big business is down for Wall Street, and bankers may soon start pointing their fingers at Washington for their woes.
Global mergers and acquisitions activity fell in the first half of the year, with the respective quarters coming in at $758.5 billion and $951.6 billion, after three consecutive quarters above $1 billion, financial data firm Dealogic reported Friday.
In the first half of 2016, there was more than $600 billion worth of M&A withdrawn, making for the highest first half value of undone deals on record, according to Dealogic.
"These types of deals have a high level of risk assumed with them," said Jeffrey Nassof, vice president of consulting services at Freeman & Co.
Big deals have been either pulled or scuttled by regulatory agencies out to keep a potential monopoly from forming.
Part of the unusually large deals being yanked hinges on Washington regulators' aversion toward inversion deals that would let U.S. companies relocate headquarters to friendlier tax climates in other countries. On top of regulators' angst, the inversion deals have been targeted for criticism by politicians.
Among this year's M&A graveyard are Pfizer's withdrawal of its bid for Allergan and the scuttled Baker Hughes-Halliburton deal, to name a couple. Wall Street has already lost more than $1 billion in fees thanks to announced M&A being snuffed out, to say nothing of the time wasted that could have been utilized with other clients facilitating big deals.
Nassof said the Brexit brings with it near-term turbulence for the M&A market, but added that it could ultimately benefit Wall Street.
"Short term, it's going to be bad for deals," but there's a silver lining for U.S. banks, he said. "It's going to drive acquirers into the U.S. from Europe," and that's likely to play into the hands of Wall Street banks.
And despite regulators and politicians playing grim reaper with some of the year's biggest M&A transactions, Nassof said Wall Street should be bullish on its investment banking business. There have been a number of potential transactions brewing in the market, and bankers have privately said they expect a second half pickup in corporate deals.
That could include Mondelez's unsolicited offer for Hershey (which the Pennsylvania confectioner rejected yesterday) or Elon Musk's bid to hitch SolarCity to Tesla. On top of that, there remains the possibility that Monsanto could scoop up Bayer, which would generate yet another mega-payday for big banks.
"There's a lot more deals being pulled, but there are a lot of aggressive bids in the market," he said.