Tough U.S. Financial Conditions Could Torpedo Wall Street Dealmaking, New Research Shows

Forbes Money Investing Tough U. S. Financial Conditions Could Torpedo Wall Street Dealmaking, New Research Shows Simon Constable Contributor Opinions expressed by Forbes Contributors are their own.

Author | Broadcaster | Journalist | Commentator | Speaker. Following May 28, 2023, 02:27pm EDT | Press play to listen to this article! Got it! Share to Facebook Share to Twitter Share to Linkedin NEW YORK – JANUARY 22: People walk down Wall Street January 22, 2008 in New York City. Following a .

. . [+] sharp fall in international markets Monday, the Federal Reserve lowered its lending rate by three quarters of a percentage point to 3.

50% Tuesday. This is the largest interest rate cut since 1984 and the first intrameeting move since September 11, 2001. Wall Street came back in morning trading after news of the Fed’s significant cuts.

(Photo by Spencer Platt/Getty Images) Getty Images What happens in the U. S. financial system doesn’t stay there.

Tough financial conditions tend to rollover into the global economy and disrupt Wall Street’s mergers and acquisitions dealmaking machine, new research shows. And it could likely hit the big investment banks hard. “We find that financial conditions in the core have significant spillover effects on cross-border M&As,” states the report titled “ Cross-Border Spillovers: HOW U.

S. Financial Conditions Affect M&As Around the World . ” The paper was written by Katharina Bergant and Prachi Mishra at the International Monetary Fund, plus Raghuram Rajan at the University of Chicago Booth School of Business.

And it ws distributed by the National Bureau of Economic Resarch The researchers found the that a 1 percentage pint rise in the U. S. Financial Conditions index, which indicates its harder to get financing, leads to a decrease in value of approximately 10% for M&A deals.

However, there is some good news in this mix. While deals are priced lower when financial conditions are tighter, there is a greater likelihood that the merger or acquisition will make money for the shareholders. The authors state the matter like so: “Acquisitions that happen around tighter financial conditions globally create greater value; while those that coincide with loose financial conditions presage weaker performance.

” MORE FOR YOU Biden Will End Up Killing It Serious Crypto Warning Could Spell Chaos For The Price Of Bitcoin And Ethereum As Debt Ceiling Deal Reached The Best Memorial Day Mattress Sales For Steep Savings And Better Sleep Today’s ‘Quordle’ Answers And Clues For Sunday, May 28 That fits with a long understood phenomenon: Many deals fail to add value in any way as shown in Bob Bruner’s book “ Deals from Hell. ” So while Wall Street’s bankers — who get paid in relation to the deal fees — may suffer from tighter financial conditions, stock market investors may do substantially better. Overall, U.

S. financial conditions have tightened since the beginning of the year, although some of that move has been unwound in the last few weeks, according to the Chicago Fed, according to its National Financial Conditions Index . In other words, conditions are tighter.

In turn that should be good for investors. Follow me on Twitter or LinkedIn . Check out my website or some of my other work here .

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