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Investment banking: Lazard – Independents' day

The earnings of the independent investment banks may be far more exposed to any sharp slowdown in M&A activity than rivals with big balance sheets. Even so, the independent business model now looks battle proven, says Lazard’s Kenneth Jacobs.


Illustration: Kevin February

After three successive quarters in 2015 with over $1 trillion in deal volume, global M&A dropped to $758.5 billion and $951.6 billion in the first two quarters of 2016, according to Dealogic. 

Global M&A volume of $1.71 trillion for the first half of 2016 was down 18% compared with the first half of 2015 ($2.09 trillion) – itself the second biggest first-half volume on record behind 2007’s all-time high of $2.59 trillion.

The recent slowdown comes as corporate executives ponder their response to the economic and political uncertainties caused by the UK’s decision to withdraw from the European Union.

Analysts were instinctively quick to lower earnings estimates for banks after the referendum to reflect likely lower rates, economic weakness and lower deal activity dampening fee revenues. Goldman Sachs for example cut its net income estimates for 2016-2018 by €10 billion ($11 billion) or 14% for UK banks and by €32 billion or 11% for European banks.

It remains to be seen what the impact on M&A volumes will be from heightened uncertainty; possibly lower asset values and also lower financing costs.

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