As multinational companies rethink their global footprints, opportunity emerges for banks

It's been a brutal year for corporations operating in war-torn regions and countries embroiled in political strife. It's also been a rough ride for the global investment banks that advise them.

The uncertainty caused by war in Ukraine, lingering supply-chain challenges imposed by the pandemic and resulting 40-year highs in inflation have pushed companies to the merger-and-acquisition sidelines. This has cut deep into Wall Street's investment banking revenue. Such revenue in the second quarter dropped 22% from the prior quarter and 50% from a year earlier for, collectively, Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley, according to S&P Global data.

These banks along with peers in Europe and Asia warned that a difficult path lies ahead in the second half of 2022 as well.

"The environment, if I had to use one word to describe it, would be complicated," Morgan Stanley's chairman and CEO, James Gorman, said on the company's second-quarter earnings call.

Amid the sea of discord, however, lies at least a river of opportunity for Wall Street's titans: advising multinational companies on the intricacies of global retrenchment — how to sell off certain assets or pull out of countries altogether and reinvest in others.

Myriad corporations with global footprints are leaving Russia — a process that takes time to complete — and considering minimizing their exposure to China and other countries as geopolitical tensions simmer, said Lawrence White, an economist at New York University's Stern School of Business.

Lauren Justice/Bloomberg

White, a longtime observer of Wall Street and the global banking system, said M&A bankers surely see opportunity in advising a spate of major companies as they retrench. While investment bankers play their cards close to their vests — and rarely publicly discuss the inner-workings of their engagements with specific clients — some already are likely engaged with the likes of ExxonMobil, Marriott and McDonald's as they pull out of Russia, he said.

The banks themselves also are ditching Russia.

Deutsche Bank, for example, said in a recent statement that it is "in the process of winding down our remaining business in Russia while we help our non-Russian multinational clients in reducing their operations. There won't be any new business in Russia."

More U.S. companies ask banks: Should we 'near-shore' jobs?

White noted that withdrawals from Russia were unusually abrupt in many cases, with several companies eating losses rather than trying to find ideal buyers of their assets. U.S. and European sanctions against Russia also sharply restricted the amount of consulting work that companies can do in the country.

But White said the major investment banks, including those in the United States, surely found ways even within narrow legal confines to help their clients exit Russia. And, more important, they are helping global companies size up risk around the world and potentially reshuffle their holdings in Europe, Asia and elsewhere to steer clear of intensifying geopolitical dissonance.

"The long-running concerns with Russia literally blew up with the war in Ukraine, and now things are looking rockier and rockier with China" as the Asian power maintains ties with Russia, White said in an interview.

"So if you are a big multinational company, things are increasingly fraught in different parts of the world," White added. "There have to be meetings going on right now about whether to retract or close operations in some areas. And so there are all kinds of questions that the investment banking arms of Citi or JPMorgan or any of the big players would probably be able to help find answers to and help these multinational firms navigate these situations."

"So it creates some upside for these institutions during a very difficult time," White added.

John Weinberg, chairman and CEO of the investment banking advisory firm Evercore, said at a conference this summer that bringing more businesses close to home "is definitely something that is on people's minds and on boards' minds." Activity takes time to develop, but "I think that we're in a situation where in the medium term, I could really see a pickup," he said.

As companies move from one region to another, other banking business is bound to follow as well, from trading to wealth management.

"We need to be where our clients are going to be. Do we see some signs of shifting around the world? Yes, we do," Catherine Keating, CEO of BNY Mellon Wealth Management, said in an interview.

Citi CEO Jane Fraser, speaking on the company's recent earnings call, stopped short of addressing revenue opportunities caused by global upheaval. But she said reasons for reconsideration of international footprints abound.

"I'm just back from Europe, where … we expect a very difficult winter is coming, and that's due to disruptions in the energy supply" because of Russia's invasion of Ukraine, Fraser said. Russia is the leading supplier of natural gas to Europe. "There is also increasing concern about second order effects on industrial production and how that will affect economic activity across the continent. And the mood is, of course, further darkened by the belief that the war in Ukraine will not end anytime soon."

In Asia, Fraser added, "a rebound in China also faces some constraints given the potential for future lockdowns" related to coronavirus outbreaks and "the amount of leverage in the Chinese economy and stress in their property sector."

White summed up the state of affairs this way: "Investment banks can always find ways to provide their services, even in great times of tumult. I'm sure they'd prefer not to have all the tumult. Still, strictly from a new-business perspective, the investment banking opportunity amid all this potential global reordering could be an important offset to the geopolitical headaches we have in the world today."