Death of the mega deal as debt costs rocket 

The drought in high-level business deals could last even longer than the one after the start of the pandemic, PwC’s UK boss predicted.

Kevin Ellis, the British chairman of the Big Four’s accounting and consulting firm, said the quiet last quarter of 2022 looks set to last into the second half of this year.

Speaking at the World Economic Forum in Davos, Ellis told the Mail that the “top tier of deals” was slowing amid a “hard” debt market – after rising inflation prompted central banks to cut the cost of borrowing sharply. to increase.

“You’re not going to see the big mega deals that you’ve seen in the past for a while because the debt market isn’t able to fund them,” Ellis said.

The comments come days after a group of Wall Street banks calculated the cost of a deals slump as revenues in their investment banking arm fell by more than half, prompting JP Morgan to cut bonuses for its investment bankers by up to 30 percent .

However, Ellis was optimistic about prospects down the food chain of companies, as well as restructuring when affected companies run into trouble, all of which earn PwC lucrative consulting fees.

“Deals will always be made,” he said. “The size and scale will be different. If you go back to March 2020 we saw a void in deal making but it came back with a vengeance in September because there’s still a lot of money in the hands of private equity, sovereign wealth and corporations and that’s why they don’t want to take the miss progress.

“So while there may be a void in the top tier deal market right now, there is still activity in the mid-market and it will come back soon just like it did after Covid.

“We’re still seeing quite a bit of deal activity and our deal business is still growing.”

Ellis said there would also be “a lot of activity in the restructuring market.” He added: ‘It will change again.

“What we saw in the last time we had this delay with 2020 and Covid was that the delay was much shorter than we expected.

“I think the first signs of positivity, as we saw in the deal-led recovery in September 2020, are likely to reappear in the second half of this year.”

He said the slump started in the last quarter of last year. If his prediction is correct, it would mean that the “void” in major deals may extend beyond the six-month freeze between March and September 2020.

Lagarde interest rate hike warning

Rate hikes: Christine Lagarde, President of the European Central Bank

The European Central Bank is resisting bets that it would slow the pace of its rate hikes given the recent declines in inflation.

Investors have revised their expectations about how much it would raise borrowing costs, reassured by data showing lower inflation in the eurozone and around the world and related rumors of smaller increases from the US Federal Reserve.

But bank president Christine Lagarde said investors underestimated the determination to bring inflation in the 20-nation Eurozone back to the 2 percent target. At the moment it is 9.2 percent.

Lagarde insisted the bank was determined to ‘stay the course’, telling an audience in Davos: ‘I would [financial markets] to review their positions. I think they would do well to do that.’

The comments suggested that the ECB is preparing for further rate hikes. Bank of England Governor Andrew Bailey, on the other hand, said the UK has “turned a corner” after inflation fell for the second month in a row – although it is high at 10.5 per cent.

He also hinted that interest rates could peak at 4.5 percent, after rising from 0.1 percent to 3.5 percent since December 2021.

The Bank is expected to raise interest rates to 4 percent on February 2 – the same day the ECB was due to raise rates from 2 percent to 2.5 percent.