Q1 2015 U.S. Investment Banking Round-Up: Equity Underwriting

Last month, we detailed the overall performance of the country’s largest investment banks in the global equity capital markets for Q1 2015, as a part of our article Global Equity Markets Witness Strong Underwriting Activity In Q1. Using equity market data compiled by Thomson Reuters, we estimated the quarter-on-quarter changes in equity underwriting fees for these banks and concluded that each of their fee figures would be lower year-on-year, although an improvement was expected quarter-on-quarter. In this follow-up article, we look at the actual equity underwriting fees reported by the investment banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – and highlight the trends that emerge on a side-by-side comparison of these figures. See the full Trefis analysis for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

The global equity market saw companies around the world raise more than $242 billion through IPOs and follow-on offerings over the period – the highest on record for the first quarter of a year based on data compiled by Thomson Reuters. The total deal size figure represents an increase of almost 30% compared to the year-ago period and a sequential gain of more than 20%. However, the strong deal value was primarily due to a few large-sized deals, with the total number of deals being only slightly higher than that in Q1 2014, and actually falling 9% compared to Q4 2014. As the fee revenues for investment banks depend on the size as well as the number of deals they participate in, the quarter was expected to be a mixed one for them in terms of revenues.

The table below was compiled based on the banks’ earnings announcements, and shows how much in equity underwriting fees each of the five banks earned for each of the last five quarters.

The equity underwriting business has largely been dominated by Goldman Sachs over recent years – with the investment bank ranking #1 in terms of fee revenues for six of the last 10 quarters. While JPMorgan held the top spot on two occasions (Q2 2013 and Q3 2013), Bank of America and Morgan Stanley achieved this in one quarter each (Q4 2014 and Q3 2014 respectively). Goldman reported more than half a billion in quarterly equity underwriting fees for the third time in six quarters this time around – a commendable feat which demonstrates the bank’s strong grip on the industry. Goldman’s revenues were almost 34% higher than that for its nearest rival, JPMorgan. Notably, both Goldman Sachs and JPMorgan bucked the industry trend to report a notable increase in equity underwriting fees both year-on-year as well as quarter-on-quarter.

Bank of America’s fortunes waned in Q1, as it fell from the top of the list in the previous quarter to the #3 position this time around. The impact on revenues was not too drastic, though, as the bank reported roughly the same fee figure for both quarters. In contrast, Morgan Stanley reported a reduction in these revenues compared to Q1 2014 as well as Q4 2014. Citigroup’s poor run in the equity underwriting business also continued, as the bank reported its lowest fee figure in six quarters. It should be noted that Citigroup has lost a lot of its clout in the industry since the economic downturn of 2008, as the bank regularly figured at the top of the list in terms of total revenues over the 2005-2007 period. The reason for this is primarily Citigroup’s conscious decision to shrink its presence in the business over recent years.

Taken together, revenues for the five largest banks bucked the industry trend to witness a jump compared to the previous as well as year-ago periods. Total revenues for these banks were in excess of $1.8 billion in Q1 2015 – a 6% improvement year-on-year and a 12.5% gain sequentially. Notably, the figure is well below the $2.4 billion they pocketed in Q2 2014, which was the highest for a quarter since late 2010.

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