Investment Banks Eye Handsome Fee Revenues As Q3 M&A Deal Volume Reaches Post-Recession High

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Investment banks helped companies around the world complete M&A deals worth $867 billion over the third quarter of the year, according to data released by Thomson Reuters – comfortably surpassing the $820 billion figure seen in the previous quarter. ((Global M&A Financial Advisory Q3 2015, Thomson Reuters Deals Intelligence)) This represents a 6% improvement quarter-on-quarter and a strong 40% jump year-on-year, and makes Q3 2015 the best quarter in terms of completed deals since the economic downturn of 2008. Moreover, deals valued in excess of $1 trillion were announced for the second consecutive quarter, helping the first nine months of 2015 become the best three-quarter period for the M&A industry since 2007. The total number of announced deals fell slightly from 11,310 in Q2 2015 to 10,707 in Q3 2015, but the pipeline of announced deals helped the number of completed deals to increase from 8,027 to 8,182 over the same period.

As investment banks’ advisory fee revenues are dependent on the volume of M&A deals as well as the number of closed deals, the quarter is expected to be a profitable one for them. In this article, we highlight the performance of the five largest investment banks in the country, and also detail the expected change in their M&A advisory revenues compared to Q2 2015 and Q3 2014.

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 $867 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 the top five spots in the rankings. The table below summarizes the Q3 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 Q3’15 Fees Q2’15 Fees Q3’14 Fees
Goldman Sachs $333.6 B 38.5% 96 $3.48 B $659 M $657 M $485 M
Bank of America $192.3 B 22.2% 59 $3.26 B $397 M $273 M $274 M
Morgan Stanley $175.8 B 20.3% 72 $2.44 B $479 M $501 M $307 M
JPMorgan $165.4 B 19.1% 75 $2.21 B $463 M $435 M $401 M
Citigroup $164.5 B 19.0% 60 $2.74 B $255 M $243 M $329 M

Goldman Sachs retained its strong group on the global M&A industry, with the investment bank garnering a market share of almost 40% in the industry in terms of the volume of deals completed. Goldman has held the top spot in 8 of the last 9 quarters (with the exception being Q4 2014). The bank also held the #1 spot in terms of number of deals closed for the twelfth consecutive quarter with a role in 96 deals that closed in Q3 2015. Goldman’s average deal size was also larger than any other player in the industry.

Bank of America did well to improve its market share sharply from just 17% in Q2 2015 to more than 22% this time around. Notably, the diversified banking giant was a part of deals worth almost $200 billion, even though it played a role in a lesser number of deals than any of its other U.S. rivals. This shows that Bank of America was a part of most of the largest deals that closed over the quarter. Morgan Stanley was the only other global bank to achieve a market share in excess of 20% for the quarter.

Goldman is expected to report strong advisory revenues yet again, with imputed fees of almost $660 million. The figure will be slightly higher than in the previous quarter, and 36% higher than the year-ago period. Bank of America’s strong showing for the quarter also means that the bank should report revenues that are almost 45% more than what it earned in Q2 2015 and Q3 2014. 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 the three quarters mentioned above there is a significant difference in what each of the banks made from M&A advisory activities compared to the previous quarter as well as the year-ago period. While Morgan Stanley’s fee revenues are likely to be slightly lower quarter-on-quarter, Citigroup’s figures for Q3 2015 will be much worse than the particularly strong show in Q3 2014.

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