ZURICH, June 28 (Reuters Breakingviews) – The scene outside Goldman Sachs (GS.N) headquarters in Manhattan at 8:30 a.m. a week ago looked like the start of the academic year on a college campus. Smiling security staff greeted workers at 200 West Street as they walked through the turnstiles. A few staff members, apparently unaccustomed to the rituals of office life after more than a year of working from home, had forgotten their badges. Queues formed at the banks of the elevators.
Uptown at Morgan Stanley (MS.N) was similar. The same goes for the head offices of BlackRock (BLK.N) and Blackstone (BX.N), two of the largest fund managers in the world. Wall Street is back, and it’s booming. Pipelines, as bankers like to call their forecasts for future work, are teeming with mergers and acquisitions, stock offerings, debt sales, debt buyouts, and more. As the CEO of a company said, “If you aren’t making money in this market, you shouldn’t be in this company. “
This was the widely held view of the epicenter of global finance. For almost a year, companies focused on stabilizing their businesses and, perhaps to a lesser extent, looking after their employees. Investors focused on the resilience of their portfolios to the impact of Covid-19 on economies and markets. But with vaccinations and masks thrown away, there is a palpable urgency to make up for lost time.
What is happening in New York City today will likely be emulated in financial centers around the world over the next couple of years. To be sure, the US economy is in better shape and richer in capital than its developed counterparts in Europe and Asia. And emerging markets are largely lagging behind due to a lack of access to vaccines. But many of the trends driving Wall Street activity today are global, and unless a virus variant picks up again, it’s unlikely to dissipate anytime soon.
Start with psychology, or what Keynes called “animal spirits”. For much of 2020, executives and boards were necessarily looking inward. Many industries – retail, airlines, entertainment, accommodation and hospitality, among which – have looked into the abyss. They had to squat down and raise capital, much of it from government sources, to keep the lights on and avoid large-scale layoffs. They are emerging and in some cases, as my colleague Lauren Silva Laughlin argued, are leaner and meaner.
After facing existential questions about their operations, many business leaders are now determined to build scale and greater resilience. It means buying competitors or technology. Many have also recognized the liabilities associated with non-core assets, for which they will need investment bankers to create pitchbooks and sales processes for the months to come.
And they have money to spend. In each of the four quarters since the start of the pandemic, companies have sold more than $ 300 billion in shares – a level not seen since the end of the financial crisis – for a total of $ 1.3 trillion , according to Refinitiv. This is almost double what had been raised in the previous four quarters. Much of that money rests on the balance sheets of companies waiting to be deployed.
Much of it is in specialized acquisition companies. The so-called de-PSPC deals – where that money is used to acquire a business or assets – have changed the landscape of corporate finance and there is much more to come. SPAC Research has 419 blank check companies with $ 128 billion to spend, plus another 298 set to raise $ 72 billion through initial stock offers. Since most PSPC sponsors are required to return money after two years if they can’t find a target, this is what one banker described as “super exciting money.”
Still, it’s a drop in the bucket against the firepower of private equity firms, which were also forced during the height of the pandemic to focus on companies they already had in their portfolios. But in the first quarter, they lifted 15% more than in the months leading up to the Covid-19 hit and are now sitting on a record $ 1.6 trillion in dry powder. Preqin, a research firm, says this puts increasing pressure on policymakers to quickly identify investment opportunities as the recovery gathers pace.
Uppity investors are also retooling their clicking devices. Companies were encouraged by governments and regulators to raise money and avoid large-scale layoffs as hospitals were teeming with intubated patients and mortuaries filled with the dead. For reasons of decorum, the activists went into hiding: it would have been inappropriate to demand share buybacks and “change management” programs. Those gloves are coming off, with aggressive campaigns already surfacing to oust CEOs, like that of Danone (DANO.PA), in recent months. Activists are important catalysts for the evaluation of “strategic options” such as a sale or transfer of assets.
All this money comes in addition to, or thanks to, the monetary stimulus that central banks have injected into the economy. The Federal Reserve, European Central Bank, Bank of Japan and Bank of England have added nearly $ 10 trillion to their balance sheets since the end of 2019. This has propelled asset prices to new highs and fueled securities exchanges. Governments are also doing their part. NextGenerationEU is Europe’s € 807 billion fiscal stimulus package. US President Joe Biden struck a $ 600 billion bipartisan infrastructure spending plan with Senators last week.
Even some potential risks to the boom have a positive side. Take the potential increase in capital gains taxes that the Biden administration wants. Blackstone founder Steve Schwarzman said last week the move would create an avalanche of opportunity by fueling the exits of entrepreneurs looking to avoid paying the extra 15% or so under Biden’s proposal. This seems to have motivated the Mills family to sell Medline Industries, to Blackstone, Carlyle (CG.O) and Hellman & Friedman, for $ 34 billion a few weeks ago, in one of the biggest LBOs of the decade.
Whether all of these frenzied negotiations turn out well for investors is another story. Haste is a waste, and it’s hard to see how this rush for cash will be any different. But after a fight against the plague, we can forgive humanity for going a little crazy.
To pursue @ rob1cox on Twitter
Editing by Swaha Pattanaik and Amanda Gomez
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