Global Equity Markets Witness Strong Underwriting Activity In Q1

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The global equity market saw a flurry of activity over the first quarter of the year, with companies around the world raising more than $242 billion through IPOs and follow-on offerings over the period. [1] Quarterly data compiled by Thomson Reuters shows that this figure was the highest on record for the first quarter of a year. The total deal size is almost 30% higher than the $188.8 billion figure for the year-ago period and a good 21% above the $199.9 billion figure for the previous quarter.

The strong improvements in total deal size is, however, not expected to result in a notable increase in equity underwriting fees for investment banks. This is because fee revenues depend on both the total size as well as the total number of deals completed over a period. While total deal size saw a boost in Q1 2015, the total number of deals (1,172) was only slightly higher than that in Q1 2014 (1,110) and fell almost 9% compared to Q4 2014 (1,286). This will likely have a negative impact on total fee revenues. Thomson Reuters’ data estimates that equity underwriting fees for the industry as a whole was largely the same as what was seen for the same period last year. In this article, we detail the equity capital market performance of the country’s five largest investment banks in Q1 2015, and also estimate the change in each of their fee revenues compared to Q1 and Q4 2014.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

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The table below summarizes the performance of the equity underwriting unit at each of the five largest U.S. investment banks based on data released by Thomson Reuters earlier this week.

Bank Deal Size Mkt. Share # Deals Avg. Deal Size Q1’15 Fees Q4’14 Fees Q1’14 Fees
Goldman Sachs $23.5 B 9.7% 89 $264 M $283 M $324 M $362 M
JPMorgan $20.8 B 8.6% 118 $176 M $373 M $303 M $341 M
Morgan Stanley $17.8 B 7.3% 107 $166 M $314 M $365 M $369 M
Bank of America $17.5 B 7.2% 94 $186 M $297 M $312 M $240 M
Citigroup $11.9 B 4.9% 73 $163 M $189 M $252 M $240 M

Goldman Sachs retained the top spot in terms of market share by deal size – a position it has maintained in eight of the last eleven quarters. The bank topped the list of book-runners in Asia and Australia to achieve a market share of just under 10% for Q1. Goldman also has a substantially larger average deal size than any of its competitors – indicating that the bank played a role in most of the largest equity underwriting deals over the quarter.

With an 8.6% market share, JPMorgan came in second with a total deal size which was 12% lower than Goldman, followed by Morgan Stanley with a 7.3% market share. In terms of number of deals, JPMorgan ranked highest among all investment banks for the quarter, with the banking group playing a role in more deals (118) than any other bank – a feat it has achieved in nine of the last thirteen quarters. Citigroup’s poor equity capital markets run continued, with the bank garnering less than 5% of the market. The globally diversified banking giant slipped to the 8th position in global standings, with Swiss banks UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) and the German banking giant Deutsche Bank (NYSE:DB) putting up better performances.

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, it appears that both JPMorgan pocketed more revenues than any other investment bank. This can be largely attributed to the bank’s windfall over the quarter from landing a key role in the equity offering from Actavis – the largest deal globally for the period. Notably, Goldman was not a part of this underwriting deal, which also featured Mizuho Securities, Wells Fargo, Morgan Stanley, Barclays and Citigroup. In fact, all three banks with a greater number of deals for the quarter compared to Goldman, – JPMorgan, Morgan Stanley and Bank of America – are also expected to report higher equity underwriting fees than the premier investment bank.

All the banks except for JPMorgan are expected to earn lower fee revenues in Q1 2015 than they did in Q4 2014. Compared to the same quarter last year, we expect JPMorgan to earn around 9% more, while Bank of America could get a healthy 24% boost. While Goldman’s fee revenues should be almost 22% lower, Morgan Stanley and Citigroup will most likely report fees which are 10-15% lower than what they did a year ago.

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Notes:
  1. Global Equity Capital Markets Q1 2015, Thomson Reuters Deals Intelligence []