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Investment bankers cautious on M&A recovery in '10

* Economy, consumer causes for concern

* Boards, shareholders pushing management on deals

* Noncore asset sales, PE exits seen in 2010

NEW YORK, Dec 3 (Reuters) - Investment bankers struck a note of only cautious optimism about the prospects of mergers and acquisitions next year, despite some signs of recovery, as they worried about a weak economy and shaky consumer.

Financial institutions need to deleverage further, and the U.S. consumer, suffering from high unemployment and debt, must become more confident for any recovery to continue into 2010, senior bankers said on Wednesday at a panel discussion in New York.

"We are a lot more upbeat than we have been, but there is clearly risk to this," said Mark Shafir, Citigroup's C.N global head of mergers and acquisitions.

Some companies are making moves to divest assets that are not essential to their operations, while stronger firms, nudged on by their boards and shareholders, are looking to grow and position themselves for the recovery, the bankers said.

"We are seeing a pickup in serious strategic discussions that would give us more optimism for 2010," said JPMorgan Chase JPM.N Managing Director Thomas Miles, but he also stressed caution.

“Organic growth is going to be very difficult in many sectors, and therefore M&A’s got to be a part of that growth,” Miles said. “Corporate boards are really driving a lot of this in terms of wanting to position their companies for the recovery to emerge stronger and better-positioned than before.”

In the latest sign of hope for the M&A market, Comcast Corp CMCSA.O agreed on Thursday to buy a majority stake in NBC Universal from General Electric Co GE.N in a deal the companies valued at $30 billion.

Last month Berkshire Hathaway Inc BRKa.NBRKb.N agreed to a $26 billion takeover of rail company Burlington Northern Santa Fe Corp BNI.N, making it Warren Buffett's biggest acquisition in his 44 years of running the conglomerate.

In doing any deals though, companies are likely to be careful of their balance sheets and how they use cash.

“I do think companies will heed the lessons learned and maintain greater financial flexibility, which is one of the reasons why we see more stock deals,” Miles said.

Private equity has also started to become active again, as shown by the $4 billion buyout of IMS Health Inc RX.N by TPG [TPG.UL] and the Canada Pension Plan, and the $1.65 billion deal by General Atlantic and Kohlberg Kravis Roberts & Co [KKR.UL] for Northrop Grumman's NOC.N TASC consulting unit.

But compared with its heyday in 2006 and 2007, private equity activity is likely to remain muted in the coming year, the bankers said.

“I don’t think we are going to return to the megadeal any time in the foreseeable future,” Citigroup’s Shafir said, referring to large private equity purchases.

JPMorgan’s Miles added that he expected to see an increase in financial sponsor exits.

“We have seen it in the IPO market recently,” Miles said. “They are looking to capitalize on monetization opportunities as the markets improve.”

Peter J. Solomon Co President Kenneth Berliner struck a more cautious note, saying the weak economy and consumer continue to cast a pall over the M&A environment.

“The consumer should drive the capital markets,” Berliner said. “We are a little bit concerned that the capital markets are a little ahead of themselves.”

Dealmakers and companies have to deal with the economic uncertainty that still exists, said Sonenshine Partners Chairman Marshall Sonenshine, who moderated the discussion organized by Winston Baker, a marketing and event production agency.

"We have begun to see some real signs of activity and strength in the M&A market," Sonenshine said. "(It) will have to be a recovery that takes place despite those cross-currents." (Reporting by Paritosh Bansal; Editing by Lisa Von Ahn) (For more M&A news and our DealZone blog, go to www.reuters.com/deals) ((paritosh.bansal@thomsonreuters.com +1 646 223 6113; Reuters Messaging: paritosh.bansal.reuters.com@reuters.net))

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