M&A Activity To Boost Profits Of Some Financial Firms; Goldman Sachs Lags Morgan Stanley

Last Updated Sep 23, 2009 11:11 AM EDT

When market conditions steam ahead after a period of declines, it is common for activity in mergers and acquisitions (M&A) to soar. And so it is this time round, too.

There's somewhat of a cash bubble going on right now: cash flow at U.S. corporations rose to around $1.5 trillion in June, according to data provided by the U.S. Commerce Department. In fact, American firms are about to become the most cash-rich they have ever been versus the interest they pay on corporate bonds, if you listen to some analysts.

That scenario is setting the scene for a whole bunch of M&A activity, which could provide some much-needed revenue to financial firms' investment banking units. With the recent management changeover at Morgan Stanley, and the bank's consequently increasing focus on investment banking activities, some of that process is already at work.

"The heart, the DNA -- the fabric of this place -- has always been the institutional securities [investment banking] business and, frankly, should always be ... That's our roots," Morgan Stanley's incumbent chief executive James Gorman told employees recently, according to Time.

This year, Morgan Stanley has advised on 90 deals totaling $270 billion, while Goldman Sachs has advised 80 deals totaling $239 billion, according to trade rag The Deal. Both banks have jointly worked on the acquisition of Perot Systems by Dell, a Procter & Gamble subsidiary by Warner Chilcott, and the Adobe Systems merger.

If M&A continues to be a theme going into 2010, it's likely that Morgan Stanley will be able to maintain its edge over Goldman Sachs, which has sort of tied itself into a dependency on its trading profits. One surprise success story in this field is likely to be Citigroup, which has a super-strong, wide global investment banking team now, much of which was purged from other banks at the start of the year.

  • Daniel Harrison

    Daniel M. Harrison is a business journalist who has written for publications such as The Wall Street Journal, Dow Jones Newswires, and Forbes.com.

    In 2007, Harrison initiated Asian market coverage for TheStreet.com, reporting from New York and Hong Kong. He also served for a while as Opening Bell Editor at the financial blog Dealbreaker.com. Harrison is the publisher, editor and writer of The Global Perspective, and you can follow him on Twitter at Twitter.com/bizjourno.