Reuters NEXT Goldman Sachs sees ‘less robust’ dealmaking in medium term

NEW YORK, Nov 8 (Reuters) – Goldman Sachs (GS.N) expects dealmaking activity to stay subdued in the medium term as macroeconomic conditions weigh on private equity transactions, an executive said on Wednesday.

“For the medium term, the dealmaking environment will indeed be a little bit less robust,” Jim Esposito, co-head of Goldman’s global banking and markets division, said in an interview at the Reuters NEXT conference in New York.

The private equity industry over the past 18 months to two years has returned a lot less capital to their investors and have found it harder to monetize assets, he said.

“That flywheel of raising money, investing it, returning it, will be less efficient going forward,” Esposito said.

Mergers and acquisitions (M&A) activity globally showed few signs of improvement in the third quarter but a rebound in volumes in the United States – the world’s biggest investment banking market – gave dealmakers hope of a sustained recovery in the near term.

The total value of M&A fell slightly to $717.4 billion during the September quarter, according to data from Dealogic, from $738.1 billion last year during the same period.

Equity markets are feeling confident after the latest Federal Reserve meeting, he said. After the central bank kept rates unchanged, some companies decided to sell equity shares, he said.

The Fed earlier this month kept its overnight short-term interest rate target unchanged at between 5.25% and 5.5% and preserved the option to raise rates again as inflation is still well above its 2% target.

For initial public offerings, it will take a while for activity to pick up, with a potential recovery next year.

The trading environment for stocks and fixed income is far more interesting given the interest rate environment, inflation and escalating geopolitical tensions that are fueling volatility in markets.

“We’re sitting on what is one of the more interesting trading environments in my career,” he said.

Esposito addressed Goldman’s move to scale back its consumer ambitions.

Growing investor skepticism over the business — and $3 billion of losses — prompted CEO David Solomon to shift Goldman’s focus back to its traditional strengths of investment banking and trading.

The decision to move into consumer banking was made when the world was facing zero interest rates and no bank was earning its cost of capital, Esposito said.

“We realized that’s a hard business that we don’t necessarily have any differentiated or competitive advantage to be in,” he said.

“And so then there was a healthy debate about the sizing and scaling of our consumer ambition. And I think the firm under David’s leadership did something very, very brave.”

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Lananh Nguyen is the U.S. finance editor at Reuters in New York, leading coverage of U.S. banks. She joined Reuters in 2022 after reporting on Wall Street at The New York Times. Lananh spent more than a decade at Bloomberg News in New York and London, where she wrote extensively about banking and financial markets, and she previously worked at Dow Jones Newswires/The Wall Street Journal. Lananh holds a B.A. in political science from Tufts University and an M.Sc. in finance and economic policy from the University of London.

Anirban Sen is the Editor in Charge for U.S. M&A at Reuters in New York, where he leads the coverage of the biggest deals. After starting with Reuters in Bangalore in 2009, Anirban left in 2013 to work as a technology deals reporter in several leading business news outlets in India, including The Economic Times and Mint. Anirban rejoined Reuters in 2019 as Editor in Charge, Finance to lead a team of reporters, covering everything from investment banking to venture capital. Anirban holds a history degree from Jadavpur University and a post-graduate diploma in journalism from the Indian Institute of Journalism & New Media.
Contact:+1 (646) 705 9409

Saeed Azhar is a Reuters financial journalist and part of the U.S. banking team, which covers Wall Street’s biggest banks. He focuses on Goldman Sachs and Bank of America, and also writes about regional banks. Before moving to New York in July 2022, he led the finance team in the Middle East from Dubai, and also worked in Singapore, covering Southeast Asia finance.
Contact: +1-3479086341