Q1 Debt Origination Revenues Likely To Be High Despite Lukewarm Activity

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Companies around the globe raised $1.58 trillion through debt issuance over the first quarter of 2015, according to Thomson Reuters’ quarterly report for the industry released this week. [1] This figure is marginally better than the $1.57 trillion figure for Q1 2014, and a good 25% above the $1.26 trillion for Q4 2014. Considering the fact that the cyclical debt industry is strongest in the first quarter, and that the previous quarter was the slowest period for the industry in at least three years, the activity level for Q1 2015 was below average. This is evidenced by the sequential reduction in the number of debt origination deals, as the figure for this quarter (3,748) was the lowest in the last four quarters.

That said, the number of deals was much better than the figure for the same period last year (3,265). 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, Q1 2015 is expected to be an overall strong period for banks in terms of fee revenues. Thomson Reuters’ data estimates a 4.6% increase in fees for the industry as a whole compared to the same quarter of the prior year, and a near-30% jump in fees sequentially.

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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 units at each of these banks based on data compiled by Thomson Reuters. It should be noted that the fees for Q1 and Q4 2014 mentioned here are imputed fees, and not the actual figures reported by the bank.

Bank Rank Proceeds Mkt. Share # Deals Avg. Deal Size Q1’15 Fees Q4’14 Fees Q1’14 Fees
JPMorgan 1 $120.9 B 7.7% 435 $278 M $507 M $411 M $426 M
Barclays 2 $109.2 B 6.9% 363 $301 M $345 M $222 M $279 M
Citigroup 3 $107.7 B 6.8% 390 $276 M $452 M $341 M $335 M
Deutsche Bank 4 $98.3 B 6.2% 389 $253 M $387 M $313 M $310 M
Bank of America 5 $86.2 B 5.5% 307 $281 M $396 M $332 M $376 M

JPMorgan has maintained the top spot among all debt originators for thirteen straight quarters now. The bank also ranked at the top in terms of number of deals as it participated in 435 of 3,748 deals  for Q1 2015. This represents a share of 11.6% of the market – a sequential improvement from 9.1% in Q4 2014. 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.

Barclays and Citigroup took up the second and third spot with a near-identical performance for the quarter, with each of the banks garnering a market share of just under 7%. Deutsche Bank improved its standing in the list slightly compared to Q4 2014, as a sequential increase in market share from 5.9% to 6.2% helped it climb one position to the fourth spot.

The average deal size among these banks increased from $241 million in Q3 2014 to $278 million, with Barclays maintaining the highest figure of $301 million among these five banks. Goldman Sachs fared better than any other bank in this regard, with an average deal size of $308 million. Notably, Goldman has reported the highest average deal size for five consecutive quarters now. This 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, JPMorgan emerges on top in that category too, with imputed fees in excess of half a billion dollar for the quarter. The $506-million figure for Q1 2015 is 19% higher than the figure for the same quarter last year, and an improvement of 23% quarter-on-quarter. This trend is evident across the largest investment banks, as Q1 2015 figures are estimated to be much better than those for Q1 2014 and Q4 2014. Citigroup is likely to see the largest increase in debt origination fees among these banks, with a jump of almost 33%. 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 Q1 2015, Thomson Reuters Deals Intelligence []