At long last, are the markets giving us some good news?
After years of slim pickings, the City's deal makers are savouring the possibility of an upsurge in mergers and acquisitions, while other signs point to the end of the downturn
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Saturday 13 July 2013
The financial world showed a glimpse of the good old days yesterday with the announcement of two mega-deals and forecast-busting results from one of the world's biggest banks.
The engineering group Invensys said it was "likely" to recommend a £3.3bn takeover offer from French suitor Schneider Electric, while Phoenix, the company founded by entrepreneur Hugh Osmond to buy insurance companies, said it was in talks about a possible merger with part of Swiss Re, in a deal that could be worth up to £3bn.
It came as JP Morgan, whose investment banking business would receive a shot in the arm from a revival in deal activity, unveiled a barnstorming 31 per cent surge in earnings for the second quarter of 2013.
The bank turned in net earnings of $6.5bn, well ahead of Wall Street's consensus forecast of $5.47bn. The bank endured a torrid time of it last year after it emerged that a trader nicknamed the "London whale" had lost billions of dollars.
Wells Fargo, America's biggest mortgage lender, also turned heads by posting a 19 per cent rise in second-quarter profit, overcoming a drop-off in the mortgage market.
There was even a rare piece of good news on sovereign debt, as Standard & Poor's cemented Ireland's position as the poster boy for bailed-out eurozone economies by upgrading its outlook on the fallen Celtic Tiger's credit to positive from stable.
However, it was the news of renewed deal activity that will excite the City because it is this that drives revenues for a small army of bankers, PR advisers, lawyers and accountants, many of whom have endured slim pickings over the last few years.
The announcements come just weeks after figures showing that merger and acquisition (M&A) activity had sunk to its lowest level since the financial crisis. And that has fed through to a slowdown in City hiring. Yesterday headhunter Morgan McKinley's London Employment Monitor showed that between 13 May and 13 June there were 7,749 vacancies for finance workers.
That is an improvement on the 6,436 between 13 April and 13 May 13, but compared to last year the figure is over a fifth lower. Between 13 May and 13 June in 2012 there were 9,954 openings. Hakan Enver, operations director at Morgan McKinley Financial Services, described the figures as a "positive sign" but added: "Overall [in the first half of 2013], there have been 9 per cent fewer jobs coming on to the market, indicating that there is still scope for further market recovery over the remainder of the year."
One M&A banker said: "I'd like to say that this is the start of an M&A boom, but in reality Invensys has been a target for some time now. There's a general sense among bankers that the next six months are going to be better than the first."
With Invensys shares at a ten-year high, dealers speculated that the announcement could be the spark to ignite a bid battle. US group Emerson Electric was in talks to buy it a year ago, while a report in May 2012 said Germany's Siemens, Switzerland's ABB and US giant General Electric have also made informal contact.
Brokers at Investec also speculated that other British engineers, such as Smiths Group and Weir Group, could be future targets for foreign suitors.
Meanwhile the Dow, up just over 15 per cent this year, hit another record high although it swiftly fell back. The FTSE 100, which is up 8.6 per cent over the year, closed just ahead, up 1.53 at 6,544.94. The Dow started strongly after Thursday's record close, but soon eased back.
Shareholders may yet dampen down the City's deal ardour, amid wariness about banking executives' expensive empire-building plans.
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