Q1 2015 U.S. Investment Bank Round-Up: Advisory Services

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The first quarter of 2015 was the best first quarter for the M&A industry since 2007 in terms of announced deals, with data compiled by Thomson Reuters showing that deals worth $854 billion were announced over the period. [1] However, as fifteen of the largest deals announced over the three months were not finalized, the total volume of deals that were actually completed in Q1 is a much lower figure of $667 billion. This compares to a deal size of $817 billion that closed in the previous quarter. As investment banks earn their advisory fees for a deal only after it has closed, this was expected to result in an 18% reduction in M&A advisory fees for the industry as a whole in Q1 2015 compared to Q4 2014.

Last month, we detailed our expectations for Q1 advisory revenues at each of the country’s five largest investment banks – JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:BAC) and Citigroup (NYSE:C) – as a part of our article Banks Eye Higher Advisory Fees In Q1 As Global M&A Activity Remains Upbeat. Now that these banks have reported their results for the first 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

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Investment banks helped companies around the world close deals worth $667 billion in the first quarter of 2015. This is a notable reduction from the figure for the previous quarter, which was the industry’s highest in at least four years. As a direct result of the 18% reduction in deal size sequentially, Thomson Reuters estimated an 18% decline in fees for the industry as a whole in Q1 2015 compared to Q4 2014.

The five largest U.S. banks were expected to outperform the industry, though, as they captured the top five spots globally in terms of market share as well as total fees. The table below was compiled based on the banks’ earnings announcements, and shows how much in advisory fees each of the five banks earned over the last five quarters.

(in $ mil) Q1’14 Q2’14 Q3’14 Q4’14 Q1’15
Goldman Sachs 682 506 594 692 961
JPMorgan 383 397 413 434 542
Morgan Stanley 336 418 392 488 471
Bank of America 286 264 316 341 428
Citigroup 175 193 318 263 298
Total 1,862 1,778 2,033 2,218 2,700

Goldman remains the undisputed leader in the global M&A arena – bagging the top spot in terms of fees generated for the sixteenth consecutive quarter. In fact, the investment bank has lost the top spot in only 5 quarters over the last ten years. The performance for this quarter was particularly strong – something that becomes evident from the fact that this is the third highest quarterly advisory fee figure for Goldman in its history. The only two instances when this figure was higher was Q3 2007 ($1.4 billion) and Q4 2007 ($1.2 billion). Goldman has also churned out at least half a billion dollars in advisory fees every quarter over the last four years with only two exceptions (Q1 2011 and Q3 2013). Goldman routinely pockets between 30-40% more  in quarterly advisory fees compared to its nearest competitor, and the gap this time around was almost 80%. The 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.

JPMorgan also reported a strong performance for the quarter, with advisory fees crossing half a billion dollars for the first time in fifteen quarters and only the third time since the economic downturn of 2008. This helped the diversified banking giant comfortably move ahead of Morgan Stanley. Interestingly, the latter is the only U.S. bank to report a quarter-on-quarter decline in advisory fees. The reason for this is primarily the positive impact of the $19.5-billion WhatsApp-Facebook deal which closed last October – giving a boost to Morgan Stanley’s revenues in Q4 2014.

Taken together, these five banks witnessed a sequential 22% increase in advisory revenues – indicating that they fared significantly better than the industry as a whole, which saw an 18% reduction in these revenues. While Goldman Sachs saw a 40% jump in revenues, JPMorgan and Bank of America witnessed revenue growths in excess of 25% each followed by a 13% gain by Citigroup. Compared to the same period last year, these banks saw a 45% increase in advisory fee revenues. Each of the banks reported a year-on-year improvement in revenues of at least 40%.

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Notes:
  1. Global M&A Financial Advisory Q1 2015, Thomson Reuters Deals Intelligence []