Q2 2013 U.S. Investment Bank Round-Up: Advisory Services

by Trefis Team
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Earlier this month, we published a high-level view of the global M&A advisory industry for the second quarter in our article Investment Bank Fees Sag As The M&A Market Remains Depressed, as we tried to set investor expectations ahead of the largest banks’ earnings releases.

Based on data compiled by Thomson Reuters about M&A deals that were completed over the second quarter, we concluded that each of the five largest U.S. investment banks - Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) - made more money from the advisory business in Q2 compared to Q1, despite the fact that there was a 5% overall decline in total fee revenues for the industry.

Now that these banks have reported their results for the second quarter, we take a look at how they fared with respect to each other in terms of actual advisory fees.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

Deal Activity Remained Slow

Q2 2013 remained a slow period for advisory services with global investment banks completing M&A deals worth a total of $506 billion for the quarter – just marginally higher than the $489 billion figure for the previous quarter and almost 25% below the Q4 2012 tally of $667 billion. In fact the first half of 2013 was the slowest first half in terms of M&A deals completed since 2009, and the slowest in terms of number of announced deals since 2004.

The reduced activity clearly impacted the fee revenues generated by investment banks, with the M&A industry pocketing about 5% less in fees as a whole in Q2, compared to Q1 2013. This reduction, however, did not affect the banks that held the top ranks.

The table below was compiled based on the banks’ earnings announcements, and shows how much in advisory fees each of the five banks earned for each of the last ten quarters.

($ mil) Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013
Goldman Sachs 357 637 523 470 489 469 509 508 484 486
Morgan Stanley 385 533 413 406 313 263 339 454 251 333
JPMorgan 429 601 365 397 281 356 389 465 255 304
Bank of America 320 382 273 273 203 341 221 301 257 262
Citigroup 143 198 184 159 111 202 196 206 204 215

Goldman remains the undisputed leader in the global M&A arena – bagging the top spot for the ninth consecutive quarter. Goldman has consistently churned out revenues in the vicinity of half a billion dollars each quarter through its M&A advisory unit since Q2 2011 – a notable achievement for the bank.

It should be noted that Goldman actually ranked second in the M&A advisory industry for Q2 2013 in terms of market share, with JPMorgan doing better by this measure. JPMorgan achieved this feat by playing a major role in the biggest deals that closed this quarter – namely the Heinz, Virgin Media and NBC deals. But the diversified banking giant had a role to play in a total of 50 deals that closed over the period in comparison to 76 by Goldman – explaining the difference in actual fees earned. This strong position that Goldman enjoys in the industry is the reason that we expect its advisory revenues to continue to grow in the future as shown in the chart below.

The table also shows that Morgan Stanley and JPMorgan reported a significant sequential improvement in M&A fee revenues, mostly because their figures for Q1 2013 were well below what they usually make in a quarter. Factoring this in, while all the banks have seen an improvement in fees for Q2, the change hasn’t been particularly significant – in keeping with the sluggishness seen in the M&A industry during the period.

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