I-Banks Jockey for Position

As a blockbuster year for M&A activity ends, investment banks scramble for their place on the annual league tables

Rest assured, no one on Wall Street starved last year. It was the biggest year ever for mergers and acquisitions, with global deal volume surging 33%, to just shy of $4 trillion, according to a preliminary late-December tabulation by researcher Dealogic (see BusinessWeek.com, 12/19/06, "Deals of the Year, in a Year of Deals"). But that doesn't mean that firms aren't hungry for a higher slot on the rankings of the biggest dealmakers.

As the year draws to a close and researchers compile their final analysis of annual performance, investment banks are scrambling to cast their performance in the best possible light. Firms such as Dealogic and Thomson Financial (TOC) are completing their annual league tables, which rank the firms according to the total volume of announced deals that they worked on. Goldman Sachs (GS) is No. 1, as usual, but the rest of the spots were in flux.

Citigroup on the Rise

The big story so far this year is that Citigroup (C) surged to second place from fifth, displacing Morgan Stanley (MS), which dropped to fourth. JPMorgan (JPM) held steady in third, according to Dealogic's preliminary rankings, which will be updated just after New Year's Day. The numbers are so close that the odds of the rankings shifting are fairly good. As of late December, Goldman had worked on $1.05 trillion worth of deals, followed by Citi with $980 billion, JPMorgan with $930 billion, and Morgan Stanley with $888 billion, according to Dealogic.

Given the stakes, banks are using the last few days of the year to jockey for position. Citigroup turned some heads when it appeared on a list of advisers that worked on Statoil's (STO) $30 billion acquisition of oil and gas giant Norsk Hydro (NHY). Goldman has been Norsk's adviser during most of the negotiations, but Citi got full credit for providing Norsk with a fairness opinion. The fact that Citi research analysts had recently written about the company raised questions about the timing of its hiring, since banks typically stop issuing research on companies when they are hired to represent them for certain kinds of work. But Citi "has produced a letter of engagement, and they have received full credit for working on the deal," according to Dealogic analyst Natalie Cogan.

There's no disputing the fact that Citi had a stellar year, working on 9 of the top 10 deals announced in 2006. It represented Endesa (ELE) in its $66 billion acquisition by E.ON (EON), Mittal (MT) in its $39.5 billion acquisition of rival steelmaker Arcelor, and the Blackstone Group in its $36 billion leveraged buyout of Equity Office Properties Trust (see BusinessWeek.com, 11/7/06, "The Money Behind the Private Equity Boom"). In each case, Citi was among a group of banks that worked on the deal, as is common these days.

Ranking Matters

It may seem petty to argue about who made the most money in a year when everyone did so well. Investment banks try to downplay the importance of the league tables, at least in their public statements. They are quick to point out that the tables don't capture certain kinds of revenue, such as work performed for sovereign nations. And counting revenue isn't as simple as turning a child's piggy bank upside down and sorting the coins that fall on the floor. Should a bank get full credit for providing a fairness opinion at the end of a negotiation, or should the banks that performed the actual advisory work during negotiations get most of the credit?

Yet the banks take the rankings very seriously. More than bragging rights are at stake. "Goldman walks into a client meeting and says, pick us, we're the best. And they are No. 1. Could they still claim they were the best if they were ranked No. 3?" says one industry executive at a rival firm, who didn't want to be named. It may be an imperfect measure of performance, but bankers believe that at the end of the day, their clients want to see how they rank among their peers (see BusinessWeek.com, 12/25/06, "M&A: An Irresistible Urge to Merge").

The top 10 was rounded out by the other bulge-bracket firms. Merrill Lynch (MER) was fifth, having worked on $748 billion worth of deals as of late December, according to Dealogic. UBS (UBS) was sixth with $660 billion, Credit Suisse (CS) was seventh with $656 billion, Lehman Brothers (LEH) was eighth with $562 billion, Deutsche Bank (DB) was ninth with $517 billion, and Lazard (LAZ) was tenth with $356 billion.

So far, the top 10 banks comprise the same group as last year, although their order has shifted. Merrill dropped to fifth from fourth. UBS held steady at sixth, Credit Suisse rose to seventh from tenth, Lehman slipped to eighth from seventh, Deutsch Bank slipped to ninth from eighth, and Lazard slipped to tenth from ninth. There was plenty of money to go around. But as usual, when prestige is at stake, too much is never enough.

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