A Big Year for Mergers in Works

Mergers and new stock sales this year are running at their highest levels since records set in the first six weeks of 2000, raising prospects for higher profits at brokerages such as Goldman Sachs Group Inc. and Morgan Stanley.

Cingular Wireless’ $41-billion offer for AT&T; Wireless Services Inc., Comcast Corp.’s $50-billion hostile bid for Walt Disney Co. last week and Banco Bilbao Vizcaya Argentaria’s $2.5-billion stock sale Feb. 4 have made this quarter one of the busiest for investment banks in three years.

“This will be a big year for equity issuance and an enormous M&A; [mergers and acquisitions] year,” said Jonathan Sandelman, president of Bank of America Corp.’s New York-based securities unit. “When CEOs start to regain confidence again about their business models, they tend to go out on the risk curve and start making acquisitions again.”

First-quarter profit at the top five U.S. brokerages may rise 22% on average, according to per-share forecasts compiled by Thomson Financial. The increase comes after Wall Street firms probably had their third-most profitable year ever in 2003, the Securities Industry Assn. said.

The value of takeovers announced in the first six weeks of 2004 has more than tripled from a year ago to $353 billion, Bloomberg data show. Mergers are at the highest level since the same period in 2000, when America Online Inc. agreed to buy Time Warner Inc. in a deal initially worth $186 billion.

Companies have issued about $47 billion of stock so far this year, more than twice the total for the entire first quarter of 2003. Morgan Stanley, Goldman Sachs, Merrill Lynch & Co. and Citigroup Inc., the top investment banks, have collected about $890 million of fees this year, according to data compiled by Bloomberg.

Morgan Stanley made about $260 million in fees advising on $7.5 billion in stock sales, a 16% slice of the global equity underwriting market. The company managed insurance giant Assurant Inc.’s $2-billion initial public offering this month.

Underwriting stock sales is one of Wall Street’s most lucrative businesses, generating fees of about 4% of the sale amount on average, Bloomberg data show.

“It will be a better year for investment banks,” said Graeme Pike, head of corporate finance consulting at PricewaterhouseCoopers in London. “Confidence is returning and people are thinking it’s a good time to buy and sell.”

Optimism about brokerage earnings fueled another rally in the stocks on Tuesday. Goldman rose $1.07 to $106.92 and is up 8.3% this year. Among smaller firms, Lehman Bros. gained $1.13 to $87.42 and Bear Stearns Cos. jumped $2.12 to $87.56. Lehman is up 13.2% this year and Bear is up 9.5%. All trade on the New York Stock Exchange.

Goldman is the No. 1 advisor on mergers this year, Bloomberg data show. The firm has worked on about $157 billion of deals, giving it 45% of the market. Morgan Stanley is second, with $153 billion of mergers. Merrill Lynch is fourth.

Merrill Lynch, which is advising AT&T; Wireless, probably will earn about $48 million for that role, according to Bloomberg estimates based on disclosed fees from similar deals.

Executives in Europe and the U.S. are reviving expansion plans as stock markets rebound from a three-year slump. The Standard & Poor’s 500 index has gained 43% since an 11-month rally began in March. The Dow Jones Euro Stoxx 50 index, a benchmark for Europe, has risen almost 50% in the period.

The U.S. economy might expand as much as 5% this year, Federal Reserve Chairman Alan Greenspan said last week. That would be the strongest pace since 1984. The European Commission forecasts growth of 1.8% for the euro region this year, compared with 0.4% in 2003, the weakest in a decade.

Other deals this year involve Sanofi-Synthelabo, France’s second-biggest drug maker, which in January made an unsolicited $60-billion stock and cash offer for bigger competitor Aventis. The same month, J.P. Morgan Chase & Co. agreed to pay $55 billion in stock for Bank One Corp. to form the second-biggest U.S. lender after Citigroup.