Did Debt Market Improvement In Q1 Help Origination Fees At Banks?
Companies around the globe raised $1.57 trillion through debt issuance over the first quarter of 2014, according to Thomson Reuters’ quarterly report for the industry released last week. [1] This figure is close to the $1.52 trillion figure for Q1 2013, but a good 18% above the $1.33 trillion for Q4 2013. While the cyclical debt industry is known to be strongest in the first quarter, as many companies prefer to raise capital raising during the first three months of the year, the growth reported by the industry is a welcome change as uncertainty surrounding the Fed’s tapering plan kept debt market activity depressed over the second half of 2013.
However, things did not improve much in terms of the number of debt origination deals, as figure for the quarter (3,265) was the lowest since the particularly bad Q3 2011. As the debt origination fees 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, one can expect mixed results from the banks in terms of their fee revenues. Thomson Reuters’ data captures this ambiguity by estimating a 17% decline in fees for the industry as a whole compared to the same quarter of the prior year, although fees are expected to improve 13% sequentially. The fact that Q4 2013 was one of the least profitable quarters for banks in recent years in terms debt capital market services is an important factor to be considered here.
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JPMorgan (NYSE:JPM) continues to maintain a tight grip on the debt market, with the bank helping companies raise more money through debt originations than any of its competitors. Barclays (NYSE:BCS), Citigroup (NYSE:C), Bank of America-Merrill Lynch (NYSE:BAC) and Deutsche Bank (NYSE:DB) are the other investment banks which feature in the list of top five debt originators for the quarter.
The table below summarizes the performance of the debt origination unit at each of these banks based on data compiled by Thomson Reuters. It should be noted that the fees for Q1 and Q4 2013 mentioned here are imputed fees, and not the actual figures reported by the bank.
| Bank | Rank | Proceeds | Mkt. Share | # Deals | Avg. Deal Size | Q1’14 Fees | Q4’13 Fees | Q1’13 Fees |
| JPMorgan | 1 | $114.5 B | 7.3% | 392 | $292 M | $426 M | $373 M | $575 M |
| Barclays | 2 | $102.4 B | 6.6% | 317 | $328 M | $279 M | $230 M | $327 M |
| Citigroup | 3 | $96.3 B | 6.1% | 333 | $289 M | $335 M | $321 M | $428 M |
| Bank of America | 4 | $95.4 B | 6.1% | 296 | $322 M | $376 M | $350 M | $494 M |
| Deutsche Bank | 5 | $95.1 B | 6.1% | 378 | $252 M | $310 M | $301 M | $405 M |
JPMorgan has maintained the top spot among all debt originators for nine straight quarters now. The bank also ranked at the top in terms of number of deals as it participated in 392 of 3,265 deals for Q1 2014. This represents a share of 12% of the market – a sequential improvement from 8.5% in Q2 2013. It must be noted here 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.
Deutsche Bank fell from the second spot on the list to fifth, although its market share only shrank marginally from 6.3% in Q4 2013 to 6.1% in Q1 2014. This drop, despite the fact that the German bank played a role in more deals than all other banks except for JPMorgan, implies that it missed out on some of the largest debt origination deals that went through this quarter.
The average deal size among the top performers in the debt capital market increased from the $240-million range over the last three quarters to almost $300 million, with Barclays maintaining the highest figure of $328 million – the highest for the U.K-based banking group since $402 million in Q1 2011. This is largely a result of the British bank’s strength in Europe and Africa.
As far as revenue from these debt offerings is concerned, JPMorgan emerges on top in that category too, with imputed fees of $426 million. While these figures are 26% lower than the figure for the same quarter last year, it would be a 14% improvement quarter-on-quarter. This trend is evident across the largest investment banks, as Q1 2014 figures are estimated to be roughly in between those for Q1 2013 and Q4 2013. 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:- Global Debt Capital Markets Q1 2014, Thomson Reuters Deals Intelligence [↩]