Equity Underwriting Fees At Banks Saw Sizable Growth In Q3

-5.26%
Downside
37.92
Market
35.93
Trefis
BAC: Bank of America logo
BAC
Bank of America

The global equity market had yet another strong quarter this time around, with quarterly data compiled by Thomson Reuters showing that companies around the world raised almost $220 billion in fresh capital through IPOs and follow-on offerings over the last three months. [1] While this figure is 22% lower than the exceptionally high $282 billion for the previous quarter, it is a good 50% higher than the $145 billion figure seen in Q3 2013. In fact, global equity deal volume has been higher than the figure for this quarter on only two other occasions over the last four years – in Q4 2013 and in Q2 2014. Also, with $690 billion in total equity capital deals, the figures for the first nine months of 2014 made this the best three-quarter period for the industry since 2007.

The strong year-on-year growth in activity for the industry points to a sizable increase in equity underwriting fees for investment banks. Thomson Reuters’ data estimates a 32% jump in equity underwriting fees for the industry as a whole compared to Q3 2013. At the same time, the sequentially lower deal size also means that the industry will have to contend with about 29% lower fees from equity capital markets compared to Q2 2014. In this article, we detail the equity capital market performance of the country’s five largest investment banks – namely Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) – in Q3 2014. We also estimate the change in each of their fee revenues compared to Q3 2013 and Q2 2014.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

Relevant Articles
  1. Trailing S&P500 by 26% Since The Start Of 2023, What To Expect From Bank of America Stock?
  2. Bank of America Stock Has An 83% Upside To Its Pre-Inflation Shock
  3. Bank of America Stock Is Trading Below Its Intrinsic Value
  4. Bank of America Stock Is Trading Below Its Intrinsic Value
  5. Is Bank Of America Stock Undervalued?
  6. Is Bank of America Stock Fairly Priced?

The table below summarizes the performance of the equity underwriting units at each of the five largest U.S. investment banks based on data released by Thomson Reuters.

Bank Deal Size Mkt. Share # Deals Avg. Deal Size Q3’14 Fees Q2’14 Fees Q3’13 Fees
Morgan Stanley $21.1 B 9.6% 103 $205 M $439 M $473 M $261 M
JPMorgan $20.7 B 9.4% 106 $195 M $401 M $450 M $336 M
Goldman Sachs $17.8 B 8.1% 74 $241 M $375 M $490 M $261 M
Citigroup $17.5 B 8.0% 92 $190 M $256 M $366 M $160 M
Bank of America $11.3 B 5.1% 88 $128 M $224 M $475 M $255 M

Morgan Stanley bagged top honors among global investment banks in Q3 2014 in terms of the size of deals as well as estimated fee revenues, garnering a 9.6% share of the market for the period. The bank topped the list of book-runners in U.S. IPOs for the period, and gained particularly from its major role in Alibaba’s $25-billion IPO – the largest global IPO on record (see Alibaba Hands Out Generous Fees To Investment Banks Involved In Its IPO). JPMorgan came in at a close second with a market share of 9.4%. The diversified banking group routinely tops the list in terms of number of deals – ranking #1 in this regard for 8 of the last 11 quarters.

With a market share of 8.1%, Goldman Sachs came in third for the quarter – making this only the second time in the last nine quarters that the bank did not hold the top spot in this list (the other instance being Q3 2013). The market share figure was also Goldman’s worst since Q4 2011, with the the bank garnering a 10.1% share of the market on average over the last nine quarters. Despite this, Goldman Sachs had a higher average deal size than any of its any of its competitors – indicating that the bank played a role in most of the largest equity underwriting deals over the quarter. The bank has held this distinction in 7 of the last 8 quarters (except for Q2 2014)

Bank of America had a particularly soft quarter, being able to capture just above 5% of the market. This was well below the average market share figure of 7.1% for the bank over the last eleven quarters, and was also one of the worst periods for the bank in this regard since the economic downturn of 2008. Notably, Bank of America was the only bank among the U.S. investment banks mentioned here that did not play a role in Alibaba’s IPO, and the absence clearly hurt its numbers for the period. The year-to-date market share figure for the bank was a respectable 6.8%, though.

Before we detail the trends in imputed fees as shown in the table above, it should be noted that imputed fees are merely an estimate based on historical data about banks’ fees for a particular role in the equity underwriting process, and the numbers the banks actually report will likely differ from these figures. But these numbers do give a good indication of what to expect. In terms of equity underwriting fees, Morgan Stanley tops the list and is believed to have pocketed $439 million in equity underwriting fees in Q3. While this figure represents a sequential reduction of 7%, it is a good 68% higher than what the bank earned in Q3 2013.

All the banks are expected to report equity underwriting fees that are between the figure for Q3 2013 and Q2 2014, except for Bank of America which is likely to end up with fee revenues 13% lower than that for the already low Q3 2013 value. The average year-on-year increase in fees for these five banks is likely to be 25% – lower than the 32% increase Thomson Reuters estimates for the industry as a whole.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Global Equity Capital Markets Q3 2014, Thomson Reuters Deals Intelligence, Oct 1 2014 []