Iran strikes: “Bankers might as well go on holiday for the rest of the summer”
When Ted Pick, CEO of Morgan Stanley, presented the US bank’s first quarter results in April, he said his bankers had three to four months' leeway before deals paused in their pipelines would be either "deleted" or relegated to the category of "someday." "Stability" was needed to get those deals going, said Pick. Nearly three months later, the world is more unstable than ever.
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Bankers who were already struggling to get deals over the line, may need to give up until when - and if - the dust settles on the US strike on Iran. “This will probably mean that summer comes early and that people can go on holiday for the rest of the summer,” says one senior ECM banker in London. “We’ll have to see how markets are in September.”
The uncertainty created by the US bombing comes after a difficult year for investment bankers. Dealogic says global M&A deals are up 27% year-on-year so far, but this is off a low base. Equity capital market revenues are down 16% in Europe, and European IPO revenues are down 61%.
Banks were signalling pain in their deals teams. Speaking at a conference in early June, Bank of America president Brian Moynihan, said investment banking revenues at BofA were likely to fall 25% y-o-y in the second quarter. At the same conference, Deutsche Bank CEO Christian Sewing said deals from the second quarter were already slipping into the third. Daiwa recently froze its M&A hiring because of uncertainty caused by tariffs.
Now there's the uncertainty caused a potential major war. Navid Mahmoodzadegan, Moelis & Co's new CEO, told Bloomberg last Monday that although there had been a "steady improvement in M&A since April," the Middle East conflict threatened its continuance. "For sure, geopolitical risk and things like wars have the potential to create bad outcomes," he added.
Headhunters said the geopolitical uncertainty is likely to further suppress hiring in a year when hiring has already been weak. “This will put everything on hold,” says the head of one London search firm. “Clients have already messaged me this morning to say they’d like to wait on hires.”
In markets, though, it could be a different issue. There's dispute over whether the US attack was priced in - some portfolio managers say it was, as evinced by the rise in the Israeli and Saudi stock exchanges. "The market seems to imply that Iran is finished," says one former Goldman partner. However, an equity sales MD says risk will likely be taken off on Monday. "Iran's next actions will be crucial," he adds.
While volatility is bad for banking deals, it can be good for markets revenues. This could be good for hedge funds too, although poorly positioned equities pods may suffer. "Hedge funds like volatility," says one hedge fund headhunter. "Low volatility means lower returns." However, large multistrategy funds like Citadel and Millennium returned only 0.8% and 0.4% in the year through to June 1st, despite volatile conditions. Two weeks ago, Goldman Sachs' COO John Waldron said the firm was already reducing its risk appetite as a result of uncertainty surrounding tariffs.
The most pressing question is what happens to hedge fund managers and bankers in the UAE and Saudi Arabia. Last Monday, Mahmoodzadegan said the safety of Moelis & Co's bankers in the Middle East was his "number one priority." Hedge funds have been flocking to Dubai and Abu Dhabi and even though most hedge fund employees have "an exit" in the form of citizenships that entitle them to live elsewhere, airlines have begun halting flights to the region.
The US has 40,000 troops based across the Middle East, stationed mostly in Qatar, Bahrain, Iraq, Syria, Kuwait, and the United Arab Emirates (UAE). One hedge fund professional told us last week that Dubai is a safe place to be, "as long as the US doesn't get involved." Unfortunately that's no longer the case.
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