Banks Pocket Handsome M&A Fees As Industry Witnesses Strongest Quarter Since The Downturn

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The global M&A industry saw investment banks help companies close deals worth $820 billion for the second quarter of the year according to data released by Thomson Reuters. ((Global M&A Financial Advisory Q2 2015, Thomson Reuters Deals Intelligence)) This is 23% higher than the $667 billion figure for the previous quarter, and a good 70% higher than what was seen for the year-ago period. This made Q2 2015 the best quarter in terms of completed deals since the economic downturn of 2008. Also, deals worth $1.4 trillion were announced over the quarter – a 62% improvement over the figure for Q1 2015 – making the first half of 2015 the best six-month period in terms of announced deals since 2007. The total number of announced deals also jumped from 9,165 in Q1 2015 to 11,310 in Q2 2015, while completed deals increased from 6,724 to 8,027 over the same period.

The strong improvement in M&A activity as well as the number of closed deals will have a positive impact on the fee revenues that the world’s largest investment banks generate. Thomson Reuters’ data indicates a 18% increase in fees for the industry as a whole in Q2 2015 compared to Q1 2015. While the performance of individual banks (especially the biggest banks) may vary considerably compared to the industry trend, these estimates should help set expectations for the banks’ advisory desks as the earnings season kicks off soon.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

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As mentioned above, the total size of M&A deals completed in the first quarter of the year was $820 billion. U.S. banks garnered a strong share of this figure, with Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C) taking up five of the top six spots in the rankings. German banking giant Deutsche Bank (NYSE:DB) did well to place at the #4 position globally with a market share of 18.3%.

The table below summarizes the Q2 performance of the M&A unit at each of the five U.S. banking giants, according to Thomson Reuters’ data. It should be noted that most deals employ more than one bank, which is why the sum of market shares for just these 5 banks is well above 100%.

Bank Deal Size Mkt. Share # Deals Avg. Deal Size Q2’15 Fees Q1’15 Fees Q2’14 Fees
Goldman Sachs $292.6 B 35.7% 95 $3.08 B $657 M $812 M $361 M
JPMorgan $207.7 B 25.3% 71 $2.93 B $435 M $420 M $260 M
Morgan Stanley $156.5 B 19.1% 77 $2.03 B $501 M $418 M $322 M
Citigroup $142.5 B 17.4% 51 $2.79 B $243 M $258 M $234 M
Bank of America $140.7 B 17.2% 51 $2.76 B $273 M $328 M $244 M

Goldman Sachs closed more deals than any of its competitors in the industry over Q1, with the investment bank playing a role in deals worth almost 36% of the total M&A deals that were completed. Goldman has held the top spot in 7 of the last 8 quarters (with the exception being Q4 2014). The bank also continued to lead the list in terms of total number of deals – being a part of 95 deals that closed in the quarter. Goldman has ranked #1 in this regard for eleven consecutive quarters now. Moreover, Goldman outperformed its peers in terms of average deal size as well, with the premier investment bank reporting a figure of $3.1 billion.

JPMorgan was the only other bank to be a part of deals worth more than $200 billion that closed over the period. Notably, the bank achieved this despite helping close just 71 deals in Q2, because of which its average deal size rivals Goldman’s. Bank of America, which had an exceptionally strong first quarter, fell from #2 in Q1 to #5 in Q2 among these banks as its market share fell sequentially from 30.4% to 17.2%. On the other hand, Morgan Stanley improved its market share from under 15% last quarter (its worst performance in at least four years) to 19.1% this time around.

Goldman is expected to report strong advisory revenues yet again, with imputed fees exceeding $650 million. The figure will be lower than that for the previous quarter, though, as Goldman’s imputed fee figure for Q1 2015 was exceptionally high at $812 million. It should be noted that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the complex M&A advisory process. Although the banks report numbers which often differ quite a bit from these figures, imputed fees are generally a good indicator of what to expect.

As is evident from the comparison of fees for Q2 2015 and Q2 2014, all the banks are expected to report a notable increase in these revenues year-on-year. However, Goldman Sachs, Bank of America and Citigroup appear to break the expected trend of an overall increase in advisory revenues quarter-on-quarter with a sequential reduction in these revenues.

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