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Banks Are Lending More in Less-Lucrative Transactions

Because there are fewer M&A deals to finance, lenders are focusing on giving loans to corporations looking to cover rising expenses amid high inflation.

By Jacqueline Poh & Josyana Joshua | October 12, 2022 at 08:48 AM

Banks globally are finding there are fewer corporate acquisitions to finance now, forcing lenders to focus on a less lucrative business: giving loans to corporations looking to cover rising expenses amid high inflation.

According to data compiled by Bloomberg, the value of global mergers and acquisitions (M&A) has dropped about 29 percent compared with the same time a year ago, amid widespread market volatility that’s left firms dealing with soaring interest rates. That’s led to a drop in new business for banks arranging high-grade loans backing deals, with a 55 percent slump in the U.S. year-to-date compared with the same period in 2021 and a similar plunge in Europe.

It adds to a worrying picture for lenders, with Citigroup Inc. recently warning that the deal-making slowdown is here to stay. Although banks are replacing some of the lost business by arranging funding to cover companies’ surging expenditures as input costs rise, that type of transaction is far less profitable than arranging loans backing what are often huge M&A deals.

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