A global merger boom could help cure banks of their trading doldrums

M&A may bail out fretting traders.
M&A may bail out fretting traders.
Image: Reuters/Alessandro Garofalo
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Boom times in mergers and acquisitions come at a key moment for banks, which are eager to find ways to offset weakness in their trading businesses.

The recently announced $3.5 billion proposed acquisition between real estate web sites Trulia and Zillow and drug maker Pfizer’s $100 billion blockbuster bid for AstraZeneca illustrate the prodigious dealmaking of the past few quarters.

There is money to be made on all that corporate matchmaking. But the deal arrangers may find benefits that go well beyond the standard M&A fee.

Barclays bank analyst Jason Goldberg predicts that M&A will not only soften the blow from a trading slump in areas like fixed income, currencies, and commodities, but help drive business in other areas. He describes the upside to big banks in this way:

In addition to M&A fees, we do believe there is a ‘multiplier effect’. Increased M&A activity leads to financing activity on both the equity and debt fronts, aiding capital market revenues, while an active primary market could lead to improvements in the secondary market.

In other words, increased M&A activity has the potential to stimulate a vast array of money-generating services. That includes offering financing for the deals themselves, as well as spurring trading in the equity and debt markets. It’s a dynamic that Goldman Sachs’ boss Lloyd Blankfein is betting pans out as he explains in this Bloomberg article.

Barclays believes that the M&A buzziness will continue, given all the cash that companies hoarded during the height of the financial crisis, and amid growing optimism that the global downturn may be at an end. All that will be good news for the banking sector. Now if only they can just get those litigation expenses in check.