Goldman warns a recovery in M&A activity is a long way off

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The Independent Online

Goldman Sachs, the leading Wall Street investment bank, warned yesterday that a recovery in merger and acquisition revenues was a long way off despite signs the worst of the economic slowdown was over.

David Viniar, Goldman's chief financial officer, said the backlog of deals yet to be completed had dwindled in the fourth quarter and the near-term future for investment banking advisory activity remained a tough call. The company books fees from advising on deals only upon completion.

"It is very hard to pin down revenues in the first quarter. When the recovery comes there will be a requirement for equity, and there'll be a requirement for consolidation. But that will not feed into revenues for a while," he said. "The macroeconomic trends feel good right now but I can't say they will stay that way."

The comments came as Goldman posted full-year net profits of $2.3bn (£1.6bn), a 26 per cent fall on 2000. Fourth- quarter net profits were down a better-than-expected 17 per cent at $497m.

Net revenues from investment banking declined 28 per cent in the fourth quarter, although the falls were offset by healthy income gains from trading in bonds, currencies and commodities. Overall fourth-quarter revenues rose 35 per cent on the year.

Goldman has been making its more expensive staff redundant as the investment banking environment has slowed over the past year, but has continued to recruit at graduate and MBA level. Overall head count at the end of the financial year, which closed last month, was broadly flat on 2000 following 817 job cuts in the fourth quarter. The company said head count was targeted to stay flat over 2002.

Despite the industry suffering one its toughest years in recent history, Goldman raised salaries and bonuses as a percentage of group revenues from 47 per cent to 49 per cent.

Separately, rival Lehman Brothers reported a 68 per cent drop in fourth-quarter net income, to $130m. Its investment banking revenues slid 18 per cent in the period. Bear Stearns, another Wall Street firm, reported a better-than-expected 21 per cent drop in its fourth-quarter net profits, to $154m.