Q4 Debt Origination Volume Nosedives To Four-Year Low, But Not All Banks Suffer

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Global debt capital markets tanked from already weak conditions to end up with the lowest level of activity since late 2011 in Q4 2015. Companies around the globe raised less than $1.1 trillion through debt issuance over Q4 2015, according to Thomson Reuters’ quarterly report for the industry. [1] This figure is roughly 12% below the substantially depressed $1.24 trillion figure for Q3 2015, and 13% lower than the $1.26 trillion raised in Q4 2014. The decline over Q4 marks the sixth consecutive quarter for which debt origination volumes have shrunk year-on-year – something that is expected to weigh on debt origination fees for global investment banks.

The number of debt origination deals (3,399) was also notably lower than that for the previous quarter (3,531) as well as the year-ago period (3,937). As the debt origination fees that a bank reports are affected by the number of deals it participates in, the size of each deal and the actual role the bank plays in it, Q4 2015 is expected to be one of the worst periods for banks over recent years in terms of fee revenues. Thomson Reuters estimates a 13% decrease in fees for the industry as a whole compared to the previous quarter. In this article, we detail the debt capital market performance of the five largest U.S. banks – JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) – in Q4 2015 and also estimate how their fee revenues changed year-on-year as well as quarter-on-quarter.

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The table below summarizes the performance of the debt origination units at each of these banks based on data compiled by Thomson Reuters. It should be noted that the fees for Q4 2014 and Q3 2015 mentioned here are imputed fees, and not the actual figures reported by the banks.

Bank Proceeds Mkt. Share # Deals Avg. Deal Size Q4’15 Fees Q3’15 Fees Q4’14 Fees
Citigroup $90.9 B 8.4% 358 $254 M $354 M $267 M $341 M
JPMorgan $81.9 B 7.6% 347 $236 M $321 M $339 M $411 M
Bank of America $79.9 B 7.4% 325 $246 M $360 M $321 M $332 M
Morgan Stanley $59.2 B 5.5% 350 $169 M $267 M  $180 M $358 M
Goldman Sachs $54.2 B 5.0% 200 $271 M $198 M $265 M $265 M

Citigroup had a strong showing in the debt industry over Q4 despite weak conditions, with the geographically diversified bank playing a role in debt origination deals worth $91 billion – more than any other bank globally. The bank’s strong grip on the securitization market around the world was primarily responsible for this. Citigroup also ranked #1 in terms of number of deals participated in.  It should be noted that large debt origination deals normally have more than one bank working on them. Accordingly, the market share in terms of deal volume, as well as the number of deals, are not mutually exclusive.

With total proceeds of just under $82 billion, JPMorgan came in second. This represents a sequential improvement in performance for the banking giant, which helped companies raise $81 billion in debt over Q3 2015 to secure the third spot in this list. Notably, JPMorgan held the the top spot among all debt originators for fourteen straight quarters between Q1 2012 and Q2 2015.

The average deal size among these banks fell considerably due to the marked reduction in total deal volume. Goldman Sachs fared better than any other bank in this regard, with an average deal size of $271 million for Q4 2015. Goldman has reported the highest average deal size for eight consecutive quarters now – something that can be attributed to the fact that Goldman is picky about the debt origination deals it is involved in, and is usually a part of only the largest deals that go through over a given period.

As far as revenue from these debt offerings is concerned, Bank of America emerges on top in that category, with imputed fees of $360 million this quarter. This figure is 12% higher than the figure for the previous quarter, and also represents an 8% improvement year-on-year. Besides Bank of America, Citigroup and Morgan Stanley are also expected to report sequential increases in debt origination fees – a result of an uptick in their deal volumes in Q4 2015 compared to Q3 2015. Taken together, these five U.S. banks are estimated to have earned $1.5 billion in fee revenues from debt origination activities in Q4 2015 – almost 10% higher than the figure for the previous quarter. This is in sharp contrast to the 13% decline estimated by Thomson Reuters’ for the larger industry.

Note that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the debt origination 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.

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Notes:
  1. Global Debt Capital Markets Q4 2015, Thomson Reuters Deals Intelligence []