MW Merger activity is down 40% from its peak. Citigroup CEO Jane Fraser sees a 'big unlock' ahead.
By Steve Gelsi
Chief executive sees more megamergers, middle-market deals and initial public offerings queuing up
'We're seeing the big unlock with M&A .... It's going to be pretty active.' Citigroup Chief Executive Jane Fraser
That's $Citigroup Inc(C-N)$.'s Chief Executive Jane Fraser, who is adding her voice to optimism on Wall Street around a long-expected pickup in investment-banking activity.
Citigroup's (C) Fraser said Tuesday she's "seeing the big unlock" on the near-term horizon in the world of mergers and acquisitions, which has faced headwinds from higher interest rates, political uncertainty and regulatory factors such as antitrust activity by the Federal Trade Commission.
Citibank is now seeing a surge in interest in its clients to pursue capital-raising and mergers, as well as initial public offerings, she said.
That includes middle-market deals of $1 billion-plus up to mega-mergers that Citi handles such as its role in the pending $36 billion purchase of Kellanova $(K)$ by Mars Inc.
"There's a lot of pent-up demand," Frasier said in an interview with Bloomberg TV.
The urge to get bigger remains strong in the technology sector as companies pivot to bulk up their offerings in artificial intelligence, she said.
"It is a scale game," Fraser said.
Ever since the peak year of 2021, bankers have been looking for a revival in the lucrative business of handling mergers and acquisitions, initial public offerings and other financing activities.
All told, worldwide deal-making reached an all-time high of 58,308 transactions in 2021, with that number expected to drop 40% from that peak year to an estimated 35,157 transactions this year, according to the Institute for Mergers, Acquisitions and Alliances.
Total worldwide dollar volume has fallen even more dramatically to an estimated $2.66 trillion in 2024 from the peak of $5.24 trillion in 2021. That's a drop of 49%.
Although 2024 is showing some modest improvement from the $2.5 trillion in dollar value in 2023, this year will also be lower than the $3.38 trillion in 2022.
Dealmakers have said this is because corporations and private-equity firms have been holding back in the face of higher interest rates and a more challenging regulatory environment under the Biden administration.
That's all set to change with the uncertainty of the election in the rearview mirror and the lighter regulatory touch expected from the incoming Trump administration, even as the U.S. Federal Reserve continues to eye interest-rate cuts to energize economic activity.
"Banks are set to benefit from revived loan demand and increased deal-making thanks to clearer tax and regulatory landscapes," Chris Stanley, head of Moody's banking-industry practice, told MarketWatch earlier this week.
And many Wall Street bankers are expected to see a boost in annual bonuses for the first time in three years.
Looking ahead, Fraser sees the potential for interest rates to continue to drop even after the U.S. Federal Reserve's latest cut this month.
"We have a long way to go for rates to come down," she said.
Another potential growth driver is Citi's $25 billion private lending alliance with Apollo Global Management Inc. $(APO)$, she said.
The bank may also ink similar partnerships with other private-equity firms, she said.
Fraser warned that fiscal discipline should be pursued by U.S. officials to keep inflation in check, warning of the potential downside for big tax cuts potentially causing the national debt to sharply rise.
Meanwhile, Fraser has been leading a move at Citi to streamline operations and upgrade its technology.
"We're still tweaking things here and there," Fraser said.
The bank's third-quarter results were evidence that the effort is working, she said, as the bank grew revenue across its business lines and gained market share.
Investors have been banking on a revival in Citi's fortunes by rewarding its stock price with a 34.2% rise for far this year as of Tuesday's close, ahead of the S&P 500's rise of 25.5% and outpacing the 32.3% gain by the Financial Select Sector SPDR ETF XLF.
As good as that is, Citi is lagging the 36.2% year-to-date rise by $Bank of America Corp(BAC-N)$. $(BAC.SI)$ and a gain of 40.8% by JPMorgan Chase & Co. $(JPM)$, as well as the 47.5% year-to-date gain by Wells Fargo & Co. $(WFC)$.
If Citi is going to outpace these stand-outs, Fraser's work still needs to continue, but a rising deal environment couldn't hurt.
Also read: Wells Fargo touches all-time high as analyst hikes price target to new level
-Steve Gelsi
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November 13, 2024 09:41 ET (14:41 GMT)
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