VIEW FROM NEW YORK: Wall Street cashes in on merger mania

Bear Stearns's chairman, Allen Greenberg, last week gave a little reminder of the misery that was Wall Street just a few months ago. In the financial year that ended 30 June, the firm suffered a 38 per cent fall in its net income, and whereas Mr Greenberg's bonus a year before was a handsome $10.9m (pounds 6.8m), this time it slumped to $5.6m. Still a lot of money, but a big cut none the less.

So the shadow of 1994, when virtually everyone was laying off workers by the thousands and bond trading suffered its worst spell in 70 years, still lingers a little. But almost every other item of news coming from the Street these days tells us that the sunlight has started to return. Even Salomon, beset both by losses and an exodus of its top performers, might just have managed a profit in the quarter just ended. (They will tell us in the third week of the month.) Then we will know for sure that the wheel has turned.

And why shouldn't things be better? While rising interest rates spoiled the party in 1994, this year the rates scenario - basically stable but on a downward trend - has been near perfect. Over- the-counter securities trading is booming, while investors continue to pour their money into US mutual funds at a record pace. And that's before considering the avalanche of merger and acquisition activity, led by the takeover bids for Capital Cities-ABC by Walt Disney, for CBS by Westinghouse and, most recently, for Turner Broadcasting by Time Warner. Merger mania in the media industry is almost being matched by the banking sector, with fusions by the handful, including that between Chase Manhattan and Chemical Bank.

Indeed, according to a study published on Friday by Mergestat Review, a publication of the Los Angeles investment bank Houlihan Lokey Howard & Zukin, 1995 is set to become America's biggest takeover year in history. The third quarter alone produced deals worth a record $125.2bn, up 55 per cent over the same quarter in 1994. So far this year the number of deals valued at $1bn or more is up 65 per cent, while the number of smaller combinations has also risen sharply.

Wall Street is enjoying the ride. Notable beneficiaries include CS First Boston, Goldman Sachs and, above all, Morgan Stanley, which acted as adviser both in the Chemical-Chase deal and in Time Warner's $7.5bn embrace of Turner. Last Wednesday, Morgan Stanley revealed that its second-quarter earnings leaped 73 per cent over the same period last year. Investment banking revenue was up 68 per cent and trading revenue up 17 per cent. Not surprisingly, the stock value has soared 58 per cent since the beginning of this year.

Lehman Brothers too has been attracting attention. Its revenues have been rising gradually while its stock value, like Morgan Stanley's, has taken off. Some of the market interest reflects speculation that Lehman may be ripe for takeover, perhaps by a foreign institution anxious to get a decent foothold in America. Thought to be near the front of the queue of potential buyers are Union Bank of Switzerland, Deutsche Bank and Dresdner Bank.

In addition to the improved conditions, many firms are benefiting from their efforts last-year to cut costs, including the multiple redundancies. "The lay-offs have worked and are beginning to show through in the financials," says Michael Lipper, of Lipper Analytical in New York. He confirms that Wall Street is thriving again but voices caution. "I would say it is a good time, but not yet a boom time. There is still some pricing pressure and some excess capacity". So far there has been no sign of significant rehiring of any of the thousands who got their pink slips last winter.

And while little change seems likely on rates in the near future, the months ahead may hold some other uncertainties. Mr Lipper is concerned, for example, that the onset of the presidential campaign may bring some of the trading volumes down as investors and corporations consider what kind of policy changes various candidates might bring. "It is possible that as we begin to see the candidates we may become like deer in the headlights. It is a wonderful excuse to do nothing", he says.

Finally, there are others, aside from the investment bankers, who are making money in the merger binge. As the gossip from the Time Warner courtship of Turner surfaces, we learn, for example, that none other than Michael Milken, the ex-convict who, in theory, is banned from any securities-related businesses, is reportedly being paid a $50m fee by his friend Ted Turner for advice rendered. Then there is the package that has been promised to Mr Turner himself, who, if the deal goes through, will become a vice president of Time Warner. His pay packet, according to the New York Times, has been set at over $110m for the first five years - or somewhere around $42 a minute. Eat your heart out, Mr Greenberg.

PROMOTED VIDEO
News
ebooksNow available in paperback
News
In this photo illustration, the Twitter logo and hashtag '#Ring!' is displayed on a mobile device as the company announced its initial public offering and debut on the New York Stock Exchange on November 7, 2013 in London, England. Twitter went public on the NYSE opening at USD 26 per share, valuing the company's worth at an estimated USD 18 billion.
news

Arts and Entertainment
Martin Freeman and Benedict Cumberbatch as John Watson and Sherlock Holmes in Sherlock
tv

Co-creator Mark Gatiss dropped some very intriguing hints ahead of the BBC drama's return next year

News
people

London 'needs affordable housing'

Arts and Entertainment
music Band accidentally drops four-letter description at concert
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines