Goldman Sachs sees 'less robust' dealmaking in medium term

Goldman Sachs expects dealmaking activity to stay subdued in the medium term as macroeconomic conditions weigh on private equity transactions, an executive said on Wednesday. "For the medium term, the dealmaking environment will indeed be a little bit less robust," Jim Esposito, co-head of Goldman's global banking and markets division, said in an interview at the Reuters NEXT conference in New York.

The private equity industry over the past 18 months to two years has returned a lot less capital to their investors and has found it harder to monetize assets, he said. "That flywheel of raising money, investing it, returning it, will be less efficient going forward," Esposito said. Mergers and acquisitions (M&A) activity globally showed few signs of improvement in the third quarter but a rebound in volumes in the United States - the world's biggest investment banking market - gave dealmakers hope of a sustained recovery in the near term.

The total value of M&A fell slightly to $717.4 billion during the September quarter, according to data from Dealogic, from $738.1 billion last year during the same period.

Equity markets are feeling confident after the latest Federal Reserve meeting, he said. After the central bank kept rates unchanged, some companies decided to sell equity shares, he said.

The Fed earlier this month kept its overnight short-term interest rate target unchanged at between 5.25 per cent and 5.5 per cent and preserved the option to raise rates again as inflation is still well above its 2 per cent target.

For initial public offerings, it will take a while for activity to pick up, with a potential recovery next year.

The trading environment for stocks and fixed income is far more interesting given the interest rate environment, inflation and escalating geopolitical tensions that are fueling volatility in markets.

"We're sitting on what is one of the more interesting trading environments in my career," he said.

Esposito addressed Goldman's move to scale back its consumer ambitions.

Growing investor scepticism over the business -- and $3 billion of losses -- prompted CEO David Solomon to shift Goldman's focus back to its traditional strengths of investment banking and trading.

The decision to move into consumer banking was made when the world was facing zero interest rates and no bank was earning its cost of capital, Esposito said.

"We realized that's a hard business that we don't necessarily have any differentiated or competitive advantage to be in," he said.

"And so then there was a healthy debate about the sizing and scaling of our consumer ambition. And I think the firm under David's leadership did something very, very brave."