A record year for financial services mergers brought unprecedented fees to Wall Street firms that helped arrange the deals and pitch them to investors.
Investment banks collected a record $900 million in advisory fees for those deals, more than doubling 1997's $411 million, according to Securities Data Co.
But the deals themselves grew faster than the fees.
More than $478 billion of mergers were completed in the business, 172% more than in 1997, according to Securities Data. The fees investment bankers pocketed from advising on these mergers grew only 119%.
The gap can be explained in part by the stock market's drop since spring, when many big-bank mergers were agreed to.
For example, the fees Goldman, Sachs & Co. and Merrill Lynch & Co. collected from BankAmerica Corp. and NationsBank Corp. for advising on that megamerger were determined by the banks' stock prices at closing. Those banks were hit hard during the September stock swoon, and Goldman and Merrill collected considerably less in fees than if the deal had closed in mid-July.
Indeed, the unprecedentedly quick drop in bank stock valuations slowed M&A activity considerably in the second half.
But the merger market got going in the last few weeks of 1998, and competition for top talent in this field remains intense. Wall Street executive recruiters say demand for proven dealmakers is the highest since the era of leveraged buyouts in the late 1980s.
"M&A bankers will rank among ... the best-paid people on Wall Street this year," said Joan Zimmerman of G.Z. Stephens, a New York headhunting firm.
Even so, headhunters say M&A bankers at most firms may get smaller bonus checks than they had expected, because of the losses investment banks suffered in other lines of business, such as trading or underwriting.
Goldman, Sachs, Merrill Lynch, Morgan Stanley Dean Witter & Co., and Credit Suisse First Boston were the chief beneficiaries of banking's merger mania, collecting nearly 55% of the fees that financial services companies paid in 1998.
Indeed, with fixed-income and emerging markets desks enduring horrible years, M&A is proving to be a balm at many Wall Street firms.
For example, one of the few bits of good news coming out of Lehman Brothers these days is that its bank mergers group posted a 13-fold increase in fees from the year before, to $53.2 million, from $4 million. That's welcome, since the firm's fixed-income division suffered through a horrible fall and analysts expect Lehman's fourth-quarter earnings to be off 83% from last year.
Last year's flood of initial public offerings, which virtually dried up this year, was a boon to Sandler O'Neill & Partners, a boutique that takes many mutually held thrifts public. This firm's investment bankers arranged mergers for several of its clients with bigger companies and collected $34.1 million in M&A fees for its efforts, a 267% increase over 1997.