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Wall Street consiglieri are readying for a rush of new business. Bankers who advise on capital raisings or mergers and acquisitions expect a deluge of fees as Donald Trump returns to the presidency. But some clients are suddenly more valuable than others.
The potential snapback in deals is enormous. Global mergers are traditionally equivalent to around 20 per cent of US GDP in any given year, but in 2024 are around half that. If M&A volumes bounced to 25 per cent, as in 2021, that’s $4tn of additional activity. Fees range anywhere from 1 to 5 per cent for banks that win hearts, minds and mandates.
First in line is Goldman Sachs. A fifth of its revenue typically comes from M&A and underwriting, versus less than 10 per cent at Bank of America, which also runs a huge retail bank. Goldman generally tops the merger advisory ranks, with rival Morgan Stanley second or third. Goldman boss David Solomon has been positioning to pick off artificial intelligence-related deals too, assembling a special council for the purpose.
One client now has extra cachet: Elon Musk. His corporate empire is a potential fee machine, between his AI firm xAI, rocket-maker SpaceX and electric-car maker Tesla. Those companies have already generated $317mn of investment banking fees since 2010, according to LSEG data. Since the election, Tesla’s market capitalisation is closing in on $1tn. With the president’s ear, Musk is an invaluable ally.
In that race, Goldman may not be in pole position. The bank was once Musk’s go-to adviser: it lent him money, underwrote Tesla’s IPO in 2010, helped on several equity issues, and counselled him on a later-abandoned take-private plan in 2018. But when Musk made a hostile bid for Twitter, now X, Goldman was on the other side of the table. Having agreed a deal, Musk tried to jilt Goldman’s client at the altar. Twitter sued; Musk backed down.
There are probably no hard feelings. Solomon and Musk still break bread. But if Musk is the must-have client, crosstown rival Morgan Stanley may have an edge. It arranged $13bn of loans for the Twitter takeover, and assumed a portion of the losses that resulted. It has also flattered Musk liberally: chair James Gorman praises his “extraordinary capabilities”. Morgan Stanley’s Tesla analyst values Tesla stock at $310 a share; Goldman’s target is $250, below Wednesday’s closing price.
When deals revive, Goldman will do swimmingly, of course. But there is no room for complacency. Morgan Stanley boss Ted Pick, who took over at the beginning of this year, inherited a business that is persistently second fiddle in M&A. The political reversal could lead to a Wall Street reversal too.