The financial services industry was its own best customer during a grim second quarter in the merger and acquisition business advising.
The six biggest M&A announcements (dueling offers for Wachovia Corp. accounted for the fourth and fifth spots in the lineup) were all from the financial services industry. These included American International Groups plans to buy American General Corp. for $23.4 billion; Allianz AGs $20.6 billion deal for Dresdner Bank AG; Halifax Groups $14.9 deal for Bank of Scotland; SunTrust Banks Inc.s $14.4 billion unsolicited bid for Wachovia; First Union Corp.s $13 billion friendly bid for Wachovia, and Citigroups $12.8 billion deal for Mexicos Banamex.
Analysts, noting that the six bids covered the gamut of financial services and involved several geographic regions, downplayed the idea that the rankings foreshadowed a new acceleration of financial services deals. Still, they said, the industry is one where consolidation remains constant as companies actively build their capabilities across product and service lines.
Its been ongoing, said Lauren Smith, an analyst with Keefe, Bruyette & Woods Inc. Were in an environment where a lot of institutions are in multiple businesses, and were all in each others backyards.
The concentration in financial services also stems from a dearth of deals in other sectors, said Guy Moszkowski, an equity analyst with Salmon Smith Barney, a unit of Citigroup.
A quarter isnt a very long time, generally speaking, by any measure, especially when overall business is depressed, he said.
Mr. Moszkowski said nearly all the companies involved in the top deals outsourced the advisory work. Some big financial institutions, including Citigroup, have done their own advising before, and indeed Salomon Smith Barney is the adviser on its parent Citigroups deal for Banamex, a spokeswoman confirmed.
The rankings are based on the size of the transaction rather than the revenues garnered through the transaction, so an institution that advises on its own deal can look good without adding anything to the bottom line, said Diana Yates, an equity analyst with A.G. Edwards & Sons.
In-house advising doesnt really bring revenues in the door; its more about not having to pay out big expenses and makes the deal more efficient, Ms. Yates said.
The second-quarter rankings showed Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co. continuing to dominate the top ranks of mergers and acquisitions advisers for the first half of the year, even as business dropped off 35% from the same period last year.
And as with last year, Goldman Sachs advised on the most deals during the same period 78 of them, with a value of $137 billion, for about 36% market share, according to preliminary data from Thomson Financial Securities. But that is down from 129 deals in the first six months of last year, worth about $396 billion, and a 44.3% market share.
Morgan Stanley advised on 64 deals in the first half of this year. These were worth about $117 billion, or a 32% market share but again that was down from 107 deals last year worth about $383 billion, or a 43% share, according to Thomson Financial Securities Data.
David Berry, director of research at Keefe Bruyette, said the softening economy is playing a part in the decline in both the number of deals this year and their value. When stocks and earnings are down, CEOs are more inwardly focused, on layoffs, he said. Global M&A was a growth business in the 90s we are back to the level that existed three years ago.
Credit Suisse First Boston, Merrill Lynch & Co., and J.P. Morgan Chase & Co. rounded out the top five deal advisers for the first half of the year.
Credit Suisse First Boston jumped from fifth place last year to third this year, advising on 107 deals with a face value slightly above $100 billion, for a 27.3% share. Merrill dropped from third to fourth, with 48 deals worth about $76.7 billion, and a 20.5% share. J.P. Morgan Chase, which combined the M&A departments of the former Chase Manhattan Corp. and J.P. Morgan since last years first half, rose from seventh to fifth in the rankings, with 70 deals worth $58 billion, or a 15.5% market share, according to the preliminary data.
Salmon Smith Barney inched up from ninth during last years first half to sixth this year, with 71 deals worth $49.5 billion, or a 13.3% market share.
Other commercial banks were scarce among the top 25 deal advisers. Banc of America Securities dropped from 12th place last year to 13th this year, with 26 deals during the first six months worth $18.5 billion, or a 5% market share.
U.S. Bancorp, the Minneapolis company that combined with Milwaukees Firstar Corp. in the first quarter, rose from 28th to 16th in the rankings, advising on 22 deals worth $5 billion, or a 1.4% market share. FleetBoston Financial Corp. dropped from 17th last year to 23rd this year, with 22 deals worth $3.6 billion, or a 1% market share.
Goldman Sachs has been active through early June. The company put out a $1 billion offering for Computer Sciences Corp., along with five other deals that totaled $1.4 billion. In June J.P. Morgan was the lead manager on nine deals worth a total of $5.9 billion, analysts said.