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Wall Street advisors are bracing for a wave of new business. Bankers who advise on capital raising or mergers and acquisitions are anticipating a flood of fees as Donald Trump returns to the presidency. But some customers suddenly become more valuable than others.
The potential return on trades is enormous. Global mergers traditionally equate to about 20 percent of US GDP in any year, but in 2024 they are equivalent to about half that. If M&A volumes rebound to 25 percent, as in 2021, that would mean $4 trillion of additional activity. Fees range anywhere from 1 to 5 percent for banks that win hearts, minds, and mandates.
First in line is Goldman Sachs. A fifth of its revenue typically comes from mergers, acquisitions and underwriting, compared to less than 10 percent at Bank of America, which also runs a huge retail bank. Goldman generally leads the ranks of merger consultants, with rival Morgan Stanley in second or third place. David Solomon, the head of Goldman Sachs, was in a position to make deals related to AI as well, and he formed a special board for this purpose.
One client now has an additional mark: Elon Musk. His corporate empire is a potential toll machine, between his artificial intelligence company xAI, rocket maker SpaceX, and electric car maker Tesla. These firms have already generated $317 million in investment banking fees since 2010, according to LSEG data. Since the election, Tesla’s market cap is approaching $1 trillion. For the president, Musk is an invaluable ally.
In this race, Goldman may not be in first place. The bank had previously been Musk’s preferred advisor: it lent him money, underwrote Tesla’s 2010 IPO, assisted him on several stock issues, and advised him on a private takeover plan that was later abandoned in 2018. But when Musk made a hostile bid to buy Twitter, now X, Goldman was on the other side of the table. After the deal was agreed upon, Musk attempted to abandon the Goldman client at the altar. Twitter filed a lawsuit against; Musk retreated.
Maybe there are no hard feelings. Suleiman and Musk are still breaking bread. But if Musk is the must-see client, rival Morgan Stanley may have an advantage. It arranged loans worth $13 billion for the Twitter acquisition, and bore part of the resulting losses. He also complimented Musk liberally: Chairman James Gorman praises his “extraordinary abilities.” A Tesla analyst at Morgan Stanley values Tesla stock at $310 per share; Goldman’s target is $250, below Wednesday’s closing price.
When deals pick up, Goldman’s performance is, of course, overwhelming. But there is no room for complacency. Morgan Stanley’s Ted Beck, who took over at the start of this year, inherited a company consistently ranked second in mergers and acquisitions. The political coup could lead to a reversal on Wall Street as well.
john.foley@ft.com
