Elevated Equity Capital Market Activity To Boost Q2 Underwriting Fees For Banks
Quarterly data compiled by Thomson Reuters shows that the global equity market witnessed another strong quarter, with companies around the world raising more than $282 billion in fresh capital through IPOs and follow-on offerings over the the last three months. [1] This is almost 50% higher than the $189 billion in total deals for the previous quarter and 40% more than the $200 billion figure seen in Q2 2013. In fact, Q2 2014 was the best quarter in this regard since Q4 2010. Also, with $471 billion in total equity capital deals, the figures for the first half of 2014 made it the best first half period for the industry since 2007.
As can be expected, the exceptionally high level of activity in the industry means more equity underwriting fees for investment banks. Thomson Reuters’ data estimates a 38% jump in equity underwriting fees for the industry as a whole compared to Q1 2014. In this article, we detail the equity capital market performance of the country’s five largest investment banks – namely Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) – in Q2 2014. We also estimate the change in each of their fee revenues compared to Q2 2013 and Q1 2014.
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The table below summarizes the performance of the equity underwriting units at each of the five largest U.S. investment banks based on data released by Thomson Reuters.
| Bank | Deal Size | Mkt. Share | # Deals | Avg. Deal Size | Q2’14 Fees | Q1’14 Fees | Q2’13 Fees |
| Goldman Sachs | $24.1 B | 8.5% | 138 | $175 M | $490 M | $362 M | $361 M |
| Citigroup | $21.6 B | 7.7% | 115 | $188 M | $366 M | $240 M | $237 M |
| Bank of America | $21.5 B | 7.6% | 135 | $159 M | $475 M | $240 M | $286 M |
| JPMorgan | $20.4 B | 7.2% | 148 | $138 M | $450 M | $341 M | $440 M |
| Morgan Stanley | $17.9 B | 6.3% | 131 | $136 M | $473 M | $369 M | $355 M |
Goldman Sachs remains entrenched at the top spot in terms of market share by deal size – maintaining this position in seven of the last eight quarters (except for Q3 2013). The bank topped the list of book-runners in the U.S., EMEA, Asia as well as Australia (failing to do so only in Latin America) to achieve an 8.5% share in Q2 2014. Despite the strong performance, it must be noted that this market share figure is the lowest for Goldman since Q2 2012. The investment bank garnered a 10.6% share of the market on average over the last seven quarters.
With a role to play in deals worth $21.6 billion over the period, Citigroup reported one of its best performances since the economic downturn in terms of deal size. The diversified banking group’s market share was 7.7%, which was higher than nearly any quarter since 2008 – with the exception of Q1 2012 and Q2 2012. This is a marked improvement over the #8 rank the bank achieved in Q1 2014. Also, the bank achieved this feat despite being a part of just 115 deals in the quarter – lower than any of its competitors shown here. This would indicate that the bank had a role to play in most of the biggest deals that went through over the period. Thanks to this, Citigroup also reported the highest average deal size among all banks globally for Q2, interrupting Goldman’s record of doing so for six consecutive quarters since Q4 2012.
Despite playing a role in more deals than any other bank for the quarter (148), JPMorgan only managed a 7.2% market share – coming in at #4 in the list. This would signify that the bank lost out on some of the biggest equity deals for the period. Morgan Stanley also suffered a setback, as it fell from being ranked second in Q1 with a market share of 8.4%, to a market share of 6.3%.
Before we detail the trends in imputed fees as shown in the table above, it should be noted that imputed fees are merely an estimate based on historical data about banks’ fees for a particular role in the equity underwriting 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. In terms of equity underwriting fees, Goldman Sachs tops the list and is believed to have pocketed almost half a billion dollars in equity underwriting fees in Q2.
Each of these banks are expected to earn much higher fee revenues in Q2 2014 than they did in Q1 2014, with the average increase among these banks likely to be 45%. This is higher than the 38% sequential increase Thomson Reuters estimates for the industry as a whole. Bank of America is expected to see the heaviest gains, with these revenues nearly doubling quarter-on-quarter. Citigroup comes next with a 53% gain. Even the worst performer here – Morgan Stanley – will likely report a near-30% improvement in these fees.
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Notes:- Global Equity Capital Markets Q2 2014, Thomson Reuters Deals Intelligence [↩]