Weak Debt Market Activity Likely To Result In Lower Origination Fees For Banks

-19.72%
Downside
14.63
Market
11.75
Trefis
DB: Deutsche Bank logo
DB
Deutsche Bank

Global debt activity fell notably in Q3 2014 after two strong quarters to begin the year, according to quarterly data compiled by Thomson Reuters. Companies around the globe raised $1.32 trillion over the period – 17% below the $1.59 trillion figure seen in Q2 2014 and only marginally higher than the $1.28 trillion figure for Q3 2013. ((Global Debt Capital Markets Q3 2014, Thomson Reuters Deals Intelligence. Oct 1 2014)) Considering the fact that the prior year period saw companies growing wary of the debt markets due to the Fed’s plans to begin cutting back its bond repurchase program, the debt origination deal size for this quarter was well below normal. At the same time, the total number of global debt origination deals for the period was 3,766 – a 9% improvement year-on-year and a 5% decline sequentially. As this indicates a reduction in the average deal size year-on-year as well as quarter-on-quarter, we can conclude that there was a marked increase in the number of smaller deals for the period.

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, the elevated number of deals points to higher fee revenues for the industry compared to the same period last year. Thomson Reuters’ data captures this by estimating a 10% increase in fees for the industry compared to the same quarter last year, although sequentially the banks are expected to witness an 18% decline in debt origination fees. In this article, we detail the performance of the five largest debt originators in the world in Q3 2014 – JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) – and also estimate how their fee revenues changed year-on-year as well as quarter-on-quarter.

See the full Trefis analysis for Deutsche BankBarclaysJPMorganBank of AmericaCitigroup

Relevant Articles
  1. Up 18% in 2023, Where Is Deutsche Bank Stock Headed?
  2. What To Expect From Deutsche Bank Stock?
  3. What To Expect From Deutsche Bank Stock?
  4. Is Deutsche Bank Stock Fairly Priced?
  5. What To Expect From Deutsche Bank Stock?
  6. Where Is Deutsche Bank Stock Headed?

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 Q3 2013 and Q2 2014 mentioned here are imputed fees as estimated by Thomson Reuters and are not the actual figures reported by the bank.

Bank Proceeds Mkt. Share # Deals Avg. Deal Size Q3’14 Fees Q2’14 Fees Q3’13 Fees
JPMorgan $80.7 B 6.1% 369 $219 M $434 M $533 M $470 M
Deutsche Bank $77.5 B 5.9% 353 $219 M $309 M $435 M $313 M
Bank of America $79.8 B 6.0% 299 $267 M $410 M $373 M $413 M
Citigroup $79.5 B 6.0% 310 $256 M $316 M $444 M $354 M
Barclays $65.5 B 5.0% 271 $242 M $208 M $392 M $256 M

JPMorgan has maintained the top spot among all debt originators for eleven straight quarters now. The bank also ranked at the top in terms of number of deals, as it participated in 369 of 3,766 deals for Q3 2014. This represents an 9.8%-share of the market in this regard. It should be remembered that as large debt origination deals normally have more than one bank working on them, the market share figures in terms of deal volume as well as the number of deals are not mutually exclusive.

Deutsche Bank ranked second in terms of deal size for the second consecutive quarter, with the German banking giant grabbing a 5.9% share of the market. The bank was also second among all global banks in terms of deals – playing a role in 353 debt origination deals over the period. Bank of America and Citigroup reported a near-identical performance, with roles in deals worth just under $80 billion for a market share of 6.0% each. Notably, Bank of America was the only bank among those mentioned here to witness a marked increase in its market share quarter-on-quarter (6% in Q3 2014 compared to 4.4% in Q2 2014), with all the other banks witnessing a sequential reduction in market share.

The average deal size among the top performers in the debt capital markets has fallen for two straight quarters, from almost $300 million in Q1 2014 to $260 million in Q2 2014 to $241 million in Q3 2014. This highlights the fact that the number of smaller deals has increased steadily each quarter. While Bank of America’s average deal size of $267 million for the period was the highest among these five banks, Goldman Sachs (NYSE:GS) fared better globally with a figure of $294 million. In fact, Goldman has reported the highest average deal size figures for 12 of the last 15 quarters – indicating that the bank more often than not plays a role in the largest debt origination deals.

As far as revenue from these debt offerings is concerned, JPMorgan emerges on top in that category too, with imputed fees of $434 million. However, this figure is 19% lower than that for the previous quarter and 8% below that for the same quarter last year. This trend is evident across the largest investment banks with Q3 2014 figures estimated to be well below those for Q3 2013 as well as Q2 2014. Only Bank of America bucks this trend, with fee revenues expected to jump 10% sequentially. On average, these five banks are likely to report debt origination fees that are 23% lower than those for the previous quarter and 7% lower than revenues for the year-ago period. This means that the biggest banks fared worse than the industry as a whole, which is expected to see a hike of 10% in fees compared to Q3 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.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research