U.S. Investment Bank Review 2012: Advisory Services

by Trefis Team
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Now that all the major U.S. financial institutions have announced their performance figures for last quarter and full year 2012, it is a good time to pit the nation’s five biggest investment banks against each other and compare their performances under the various investment banking services they provide – namely advisory, debt origination, equity underwriting, fixed-income trading and equities trading.

This article is a part of our series on the relative performance of the country’s investment banking giants, and focuses on their advisory business. Based on Thomson Reuter’s league table data and the banks’ reported revenue figures, Goldman Sachs (NYSE:GS) tops the list when it comes to advisory services, both in terms of market share as well as total fees earned, not just among the U.S. banks. [1] JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) follow Goldman Sachs in that order.

See also U.S. Investment Bank Review 2012: Equity Underwriting and U.S. Investment Bank Review 2012: Debt Underwriting

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

Performance By Market Share

The primary revenue driver for the advisory business is the total volume of global mergers & acquisition (M&A) activity over the year. How much a bank actually makes in a year from advisory services, depends on how many of these deals the banks was involved with (i.e. the bank’s share of the market) and its role in each of them (which governs the fees it gets for the deal). Usually, global deals involve more than one bank due to their huge size.

Global M&A activity recovered to a great extent over the course of 2012, after a dismal demand for such services in the latter half of 2011. Data compiled by Thomson Reuters, shows that worldwide M&A activity (announced) for 2012 amounted to $2.6 trillion, 2% higher than that of 2011. [1] But in terms of completed M&A deals, the volume for 2012 was $2 trillion. The share of each of the five U.S. banks in this figure is summarized in the chart below:

Bank Deal Size ($ Bil) Market Share
Goldman Sachs 570.2 27.9%
JPMorgan 406.4 19.9%
Morgan Stanley 379.4 18.6%
Bank of America 274.2 13.4%
Citigroup 238.1 11.7%

Goldman Sachs’ dominance in the advisory industry is clear from the fact that it was involved in well over a quarter of all deals around the globe last year. Goldman Sachs has held the top spot every single year since 2003, except in 2009 and 2010, when it gave way to Morgan Stanley and slipped to #2.

Performance In Terms Of Fees Earned

Investment banks pocketed far lower fees in 2012, compared to 2011, as advisory fees declined 13% year-on-year. Something that hints towards the banks cutting their fees to get more business, over what started as a lean period. Goldman Sachs suffered a minor decline in advisory fees (<1%) when compared to JPMorgan, Morgan Stanley and Bank of America (>15%), to still remain the top earner. Only Citigroup bucked the trend to show an increase in fees for 2012, largely because of its considerably low 2011 (and 2012) fees figures when compared to the others.

The following table is based on the quarterly results announced by the banks over the last two years, and summarizes their fees for providing advisory services to their global clients.

Advisory Fees Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 FY’11 FY’12
Goldman Sachs 357 637 523 470 489 469 509 508 1,987 1,975
JPMorgan 429 601 365 397 281 356 389 465 1,792 1,491
Morgan Stanley 385 533 413 406 313 263 339 454 1,737 1,369
Bank of America 320 382 273 273 203 341 221 301 1,248 1,066
Citigroup 143 198 184 159 110 201 194 204 684 709

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Notes:
  1. Quarterly Review, Deals Intelligence [] []
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