| Ken Lewis | ||||||
So, Deutsche Bank is buying Merrill Lynch. No, hang on, it’s merging with UBS. Actually, Lloyds TSB wants to buy Deutsche. And if none of that works, Deutsche wants to buy PaineWebber from UBS.
What has sent bank merger rumours a-frenzy? It’s not just centred on Deutsche Bank, either. Apparently, Bank of America has its eye on Merrill Lynch and Goldman Sachs, possibly Lehman Brothers as well, and there’s even a chance it’ll go after CSFB – assuming Credit Suisse puts it up for sale.
There haven’t been this many rumours since 2000 when CSFB bought DLJ and Chase bought JP Morgan. But that was a very different time: few considered that a recession might be on the way or that equity issuance and M&A volumes would be down over 40%. And bank stock prices were high. That’s why JP Morgan sold, having finally managed its first quarter during the entire bull-market run with a return on equity above 20%, and why DLJ’s majority owner, Axa, sold out to the highest bidder.
But today stocks are low, and the price-earnings multiples of BofA and Deutsche Bank are too low to allow them to buy pure-play investment banks. BofA is trading at a multiple of just above 12, while Lehman is at 16, and would want a premium. Ken Lewis, BofA’s CEO, makes it very clear that he is not in the market, saying:”We’ve just eaten. We’re not hungry.”
As for Lloyds, if it bought Deutsche, it would be heavily exposed to investment banking, which it has avoided for 16 years. And does any foreigner really want to be involved in reforming German domestic banking?
The only way executives or shareholders will consider selling now is if there is some crisis that threatens the bank’s financial solvency. And not even the pessimists are suggesting that is the case with any of these.
The only rumour that makes any sense is UBS Warburg’s interest in Broadview, a boutique technology investment bank. Although it does not appear to be in financial difficulties, it has suffered from the drop in tech banking business and has had to cut its work force by half in the last year. As for Warburg, it is on the hunt for M&A staff.
