All world

Ask an investment banker about mergers and acquisitions in 2010, and the optimism is infectious. Except that it seems that few corporate bosses have caught the fever.

The bankers think they could use a break. Global mergers and acquisitions hit a five-year low of $1.97 trillion in 2009, 53 percent below the high reached in 2007. But now that financing is not as squeezed, confidence is supposedly returning and business conditions are apparently improving.

Privately, the bosses tell a different story. They are not nearly as bullish as some of their budding advisers think.

To start, the recession has left the bosses in something like a state of shock. After one painful shift from thinking about growth to worrying about shrinkage, there’s little rush to make another big mental transition.

Financing remains a challenge. Even when credit is available, managers and shareholders want to preserve credit ratings. Major cash takeovers will be rare. And after the stock markets’ gyrations in the last year, it’s especially hard to agree on price.

Finally, the economy is not exactly flying. For many companies, the only certainty is that it will be tough to increase revenue. Cost-cutting and margin improvement are more urgent priorities than big corporate deals.

Still, bankers should find more than a few crumbs of business. Corporate caution may be their biggest ally. The Italian utility Enel intends to raise $7 billion from asset sales to cut debt and keep its credit rating. Kraft might want to do the same should its bid for Cadbury succeed. A healthier banking system could also help, if lenders are willing to take the losses that come with overhauls.

Governments will be sellers as the equity investments of the crisis are reversed. Private equity firms are probably on both sides; buyers as they try to deploy the big cash hoards built up before the crisis, and sellers as they try to lock in some gains on older deals.

Investment bankers looking for work might want to carefully study the global automobile industry. There’s overcapacity in developed markets, rapid growth in developing markets and governments that would like to cut back on support.

China is another promising, although well-known, prospect. There have been auto and mining deals, but the really big numbers would come from the deployment of some of the country’s gargantuan foreign currency reserves payday loan companies.

All in all, 2010 will probably be a better year for mergers and acquisitions bankers than 2009. But those expecting the real deal will be disappointed.

An Emerging Market

Chinese automakers’ interest in Volvo and Saab will not transform the industry overnight. But those deals, while small, will make a substantial contribution to raising China’s game in this sector.

Beijing Automotive Industrial Holding’s $200 million payment for the technology of General Motors’ Swedish Saab unit may look tiny, but it could save the Chinese car group five years of development and help generate billions of dollars in incremental revenue. For the first time, a Chinese automaker is getting both full access to Western technology and support from the vendor to help integrate the technology into Beijing Automotive’s cars.

The technology itself may be dated — it belonged to Saab before its acquisition by G.M. — and doesn’t overlap with that of other G.M. cars. But it is still ahead of what Beijing Automotive had. The cost of licensing similar technology could have been up to 600 million renminbi ($88 million) a year, based on company estimates.

Geely’s likely $2 billion bet on Volvo, being sold by Ford Motor, is bolder. A deal is expected within weeks. Volvo has a reasonably strong brand, based on its reputation for safety. But it lost $1.5 billion last year and Volvo’s technology is shared with other Ford models. That puts Geely in a tricky relationship with Ford. By contrast, G.M. is likely to be more relaxed about Beijing Automotive’s acquisition of what it must see as antique technology.

These moves may not be revolutionary. Beijing Automotive’s deal seems reasonably cautious, although Geely’s interest in Volvo looks more ambitious. But with Chinese carmakers seen as a buyer of last resort, the developments underscore the changing dynamics of the global auto industry. It will take time for the Chinese to match the competitive threat posed by the Koreans and Japanese in autos. But that moment is drawing nearer.

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Reuters Breakingviews: A Tepid Outlook For 2010 Mergers