Advisory Fees For Banks Decline In Q3 As Slump In Global M&A Activity Continues

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Thomson Reuters released its quarterly M&A league tables for the third quarter of the year this Tuesday, and the figures point towards another lukewarm period for the global advisory industry. ((Global M&A Financial Advisory Q3 2013, Thomson Reuters Deals Intelligence)) Global investment banks completed M&A deals worth a total of $455 billion in Q3 2013 – a sequential decline of 11% compared to Q2 2013 and a steep 32% below the Q4 2012 tally of $667 billion. In terms of number of deals too the negative trend in the industry is apparent, as the nine month period for 2013 saw the lowest number of deals being announced (25,439) and being completed (19,578) since the first nine months of 2005.

The total size of new deals announced for the quarter, though, show an improvement compared to the last several quarters thanks to Verizon’s (NYSE:VZ) $130 billion deal to acquire the remaining stake in its joint venture with Vodafone. The sheer size of the deal – representing almost 18% of the total global deal volume of $744 billion announced in Q3 – is what helped buck the trend for an otherwise lack-luster quarter for the M&A industry.

The depressed demand for M&A advisory services would no doubt have a direct impact on the fee revenues the world’s largest investment banks generate. Thomson Reuters’ data indicates a 15% sequential reduction in fees for the industry as a whole in Q3 compared to Q2 2013. While the performance of individual banks (especially the biggest banks) may vary considerably compared to the industry trend, this fact should help set expectations from the banks’ advisory desks right as the earnings season kicks-off in less than two weeks now.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

As mentioned above, the total size of M&A deals completed in the second quarter of the year was $455 billion. U.S. banks garnered a strong share of this figure with Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) occupying the top three spots in the rankings. The German banking giant Deutsche Bank (NYSE:DB) and Switzerland-based Credit Suisse (NYSE:CS) took the 4th and 5th spots respectively.

The table below summarizes the Q3 performance of the M&A unit at each of the five U.S. banking giants, according to Thomson Reuters’ data for each of the first three quarters of 2013. Do note that most deals employ more than one bank, which is why the sum of market shares for just these 5 banks is nearly 100%.

Bank Rank Deal Size Mkt. Share # Deals Avg. Deal Size Q3’13 Fees Q2’13 Fees Q1’13 Fees
Goldman Sachs 1 $106.2 B 23.3% 82 $1.30 B $338 M $361 M $361 M
Morgan Stanley 2 $97.5 B 21.4% 76 $1.28 B $299 M $322 M $211 M
JPMorgan 3 $95.7 B 21.0% 74 $1.29 B $330 M $260 M $229 M
Citigroup 4 $66.8 B 14.7% 56 $1.19 B $164 M $234 M $185 M
Bank of America 5 $64.0 B 14.1% 49 $1.31 B $232 M $244 M $215 M

Goldman Sachs closed more deals than any of its competitors in the industry in Q3, with the investment banking giant playing a role in deals worth nearly a quarter of the total M&A deals that were completed. This marks a sequential improvement in the bank’s standings from #3 in Q1 to #2 in Q2 to reach #1 this time around. The bank also continued to lead the list in terms of total number of deals – being a part of 82 deals that closed in Q3.

Morgan Stanley and JPMorgan were not too far behind in terms of either deal size or number of deals closed, and ranked second and third respectively. Quite interestingly, the top three banks had an average deal size of $1.3 billion – which indicates that the banks were playing one role or the other in the most prominent M&A deals that were completed over the period.

Finally, coming to the most important aspect of fees generated by the banks from these deals, Goldman continues to make big bucks with imputed fees of $338 million. It must be noted here that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the complex M&A advisory process. Although the banks report numbers which often differ quite a bit from these figures, the imputed fees is a good indicator of what to expect.

As is evident from the comparison of fees for the second and third quarters of 2013, all the banks except for JPMorgan saw a dip in M&A advisory fees for Q3 – in-line with the trend we detailed above for the entire industry. Citigroup’s revenues are estimated to have fallen the most at roughly 30% quarter-on-quarter. Only JPMorgan is expected to reveal higher fee revenues from its advisory offerings this time around – almost 27% more than in Q2.

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