Global M&A volume was $516.8 billion in the first quarter of 2012, down 31% on the first quarter of 2011, according to preliminary figures from Dealogic.
Weekly deal volumes have tracked, sometimes not even matched, the low levels reached in the second half of 2011 when deal activity froze amid the uncertainty over the eurozone sovereign debt crisis.
Indeed, M&A bankers have just endured the lowest quarterly volume since the third quarter of 2009 and the slowest start to the year since 2003. Global M&A revenue was just $3.3 billion in the first quarter of 2012, down 18% compared with the $4.1 billion generated in the first three months of 2011.
All this comes as a disappointment when equity markets have rallied strongly in the wake of the European Central Banks extraordinary liquidity provision. Optimistic M&A bankers suggest that their business will boom three or sixth months hence because of the long lead time to M&A. Executives dont leap back into action in the first weeks of an equity rally.
However, quietly, some also point to the low equity market volumes underlying rising global stock markets and declining volatility, and sense a lack of conviction.
Some suggest M&A revenues wont be booming much before 2014, which is at the far end of any remotely credible planning period.
However, as in so many other areas in investment banking, in the good years the star bankers take home most of the revenues and in the lean years fixed costs remain high. M&A bankers point to some signs of fee cutting in M&A, a tactic which, across investment banking, often marks a desperate last-ditch effort by product teams to win markets share and dissuade bosses from cutting back or exiting.
The swing factor in the M&A business, that might drive revenues above or below budget, lies close to home in the FIG sector. In years past, M&A banks best clients have often been banks doing deals with each other. More recently, mining and energy have been the big sectors.
Banks have been doing a fair few smaller M&A transactions RBS selling its aviation leasing business, Deutsche trying to auction most of its asset management division, KBC merging its bank in Poland into Santanders. These are a class of what M&A bankers call self-help deals, which though sometimes large and remunerative for advisers, amount to pruning of the clients business portfolio rather than truly transformative M&A.
In a sector where revenues have been under pressure, key costs, including funding, have risen, revenues have collapsed and new regulation is bringing radical transformation, large-scale M&A would normally be an inevitable consequence. Achieving scale is the obvious way to cope with such challenges.
Two things have prevented it and kept the banking industry in an unusual state of transformation and reduction of over-capacity without M&A. Shareholders are burned by the memory deals, such as the three-way takeover of RBS, and wary of executives capacity to cope even with the immediately required restructuring.
More important, the whole thrust of regulation has, since the rescue takeovers at the worst point of the financial crisis, been against banks getting bigger.
Over lunch in London recently, Richard Fisher, president of the Dallas Fed, voiced disquiet at the usefulness of higher capital charges in curtailing taxpayers contingent exposure to large banks. "Well see, but I have my doubts," he said.
The implication hangs in the air that policymakers see large banks as an impediment to the transmission of monetary policy and might yet look beyond higher capital requirements to some kind of forced break-up. The last thing they want is for already complex and highly interconnected, cross-border banks to get even bigger.
Is it conceivable that large-scale M&A could return sooner than expected to the FIG sector, so providing a much-needed shot to advisers revenues? Some whisper that it could. Banks simply cannot cope with new regulatory capital requirements in their present structures.
Large buyers from Japan, elsewhere in Asia and the Middle East were eagerly looking at large asset portfolios put up for sale by European banks before the ECBs long-term refinancing operation eased the pressure on them to sell.
M&A bankers suggest that, given low valuations for European banks and the potential for survivors to increase revenue if over-capacity is taken out and economies recover, then buyers from Asia and Latin America could well be tempted. Some emerging market banks now have market capitalizations that dwarf even large national champion banks in Europe and plenty of management experience in how to make money in crisis-hit economies.