Who said Wall Street's dealmakers have gone the way of the extravagant 1980s takeover wars? Wall Street giants First Boston and Morgan Stanley stand to rake in $10 million apiece for helping put together BankAmerica's $4.4 billion merger with Security Pacific. Rothschild Inc. earned $2.5 million in cash and bonds for representing creditors in the bankruptcy of Donald Trump's Taj Mahal casino in Atlantic City. And Donaldson, Lufkin & Jenrette received $2.5 million last month for co-managing a $200 million junk-bond issue for Dr Pepper. Little by little, deal by deal, Wall Street's investment bankers are rebuilding a business that all but collapsed with the waning of the '80s. A recent surge of deals ranging from bank megamergers to huge new stock and bond issues is putting some chastened wheeler-dealers back on their feet. But without the limitless pots of cash that the now shrunken junk-bond market once provided, the investment bankers can no longer arrange the sort of blockbuster buyouts that produced breathtaking profits for Wall Street in the past decade. Instead, the erstwhile Masters of the Universe now rescue debt-laden companies and humbly take orders from corporate clients intent on acquisitions that will give them a competitive edge and help them survive the constrained 1990s.
The new era could halt a dizzying skid on Wall Street that began with the 1987 stock-market crash. Buoyed in part by mergers and new issues, investment bankers earned $900 million in the first half of 1991, compared with $540 million in the same period a year earlier. And after dismissing nearly 70,000 employees since 1987, or more than 20% of Wall Street's total work force, some firms have gingerly begun to hire again. Goldman, Sachs has added 44 new associates to work on mergers and other deals. The firm also opened a Frankfurt office for international deals. Declares Alain Lebec, a managing partner and co-director of mergers and acquisitions for Merrill Lynch: "Things are better across the board. Our clients are more interested in exploring acquisitions, and the quality of the work is more real and less speculative."
Unlike the overleveraged '80s buyouts, the sobersided new deals are largely free of debt. That is particularly true of mergers in the beleaguered banking industry, where companies are combining to eliminate overlapping branches and services and thereby cut costs. San Francisco's BankAmerica is using a stock swap to acquire Los Angeles rival Security Pacific in a deal that will create the second largest U.S. banking company after Manhattan's Citicorp. In a similar transaction, Chemical Banking is exchanging $2.3 billion of its shares for the stock of New York City neighbor Manufacturers Hanover. "Debt has become a bad four-letter word," says Benjamin Griswold, chairman of Alex. Brown & Sons, the oldest U.S. investment banking firm.
Such mergers are red meat to Wall Street, even if the fees they generate cannot match the profits from takeover wars. Investment bankers, lawyers and accountants raked in a staggering $1 billion for plotting strategy and raising the cash that enabled the buyout firm Kohlberg Kravitz Roberts to acquire RJR Nabisco for $25 billion in 1989. But the new deals are smaller and generally arranged by executives of the merger partners, so advisers play a smaller role and receive a correspondingly thinner slice of the overall purchase price.