(Bloomberg) -- More Wall Street bosses are predicting the drought in mergers and acquisitions is set to ease, with Morgan Stanley's Ted Pick and David Rubenstein at Carlyle Group Inc. expecting deals will pick up if the Federal Reserve drives interest rates down.
“They are going to start lowering at some point, when they are ready,” Pick, Morgan Stanley's chief executive, said Thursday in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland.
“They are going to be prudent. They will be thoughtful,” Pick said. “And that kind of predictability is good for investment banking because you have these financial-sponsor portfolios that have been locked up that need to be liberated.”
Last year's surge in interest rates raised concern about a looming recession and depressed M&A activity, said Rubenstein, Carlyle's co-founder and co-chairman.
“Now the recession fears are gone, interest rates are coming down almost certainly very soon, so I think you'll see a lot more M&A activity and a lot more private equity activity,” Rubenstein said in a separate interview with Bloomberg Television at Davos.
Markets will be shocked if the Federal Reserve fails to cut rates before the US presidential election in November, he said. But the central bank is likely to want to get rate cuts out of the way sooner, to avoid accusations from Republicans of meddling in favor of Democrats, said Rubenstein, who hosts a Bloomberg TV show of his own.
“I'd be very surprised if there isn't some cut by March,” he said.
The comments add to the upbeat tone at some of the biggest investment banks and private equity firms at the start of the year, a marked contrast from 2023 when deals slowed to a crawl. A pickup would be especially welcome in the private equity business, where sponsors and investors have found themselves stuck in older investments because they couldn't find buyers or acceptable prices to help them exit.
More Engagement
Goldman Sachs Group Inc. Chief Executive Officer David Solomon told analysts during the firm's Jan. 16 earnings call he's optimistic about dealmaking this year, including initial public offerings, “and we are, just across debt and equity issuance, seeing more activity, more engagement.”
A recent flurry of acquisitions of infrastructure private equity firms reflects the appeal of the asset class, Rubenstein said. Further deals are likely because infrastructure offers relatively predictable rates of return that investors want, and many buyout shops don't yet have big businesses in the asset class, he said.
JPMorgan Chase & Co.'s assessment was more nuanced, with Chief Financial Officer Jeremy Barnum saying during the bank's Jan. 12 earnings call, “We are starting the year with a healthy pipeline and we are encouraged by the level of capital markets activity. But announced M&A remains a headwind, and the extent as well as the timing of capital markets normalization remains uncertain.”
--With assistance from Hannah Levitt.
(Adds date for Goldman's earnings call. A previous version corrected the headline to remove a reference to CEOs.)
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