Strong Growth In Follow On Offerings Boosts Equity Underwriting Volumes In Q2

+8.83%
Upside
384
Market
418
Trefis
GS: Goldman Sachs logo
GS
Goldman Sachs

Activity levels remained high across the global equity market for a second consecutive quarter, with quarterly data compiled by Thomson Reuters showing that companies around the world raised $279 billion through IPOs and follow-on offerings over Q2 2015. [1] Taken together with proceeds of $242 billion for Q1 2015, the $521 billion in equity deals completed in the first half of 2015 made the period the best ever in this regard, and is a further indicator of strength in the investment banking market and should drive solid growth in fee revenues going forward.

Notably, the strong quarter-on-quarter improvement in total deal size was due to a sharp increase in the total number of equity underwriting deals. The total number of deals (1,485) was 15% higher than that in Q2 2014 (1,287) and a good 27% more than that in Q1 2015 (1,172). In fact, Q2 2015 was the second best quarter ever for equity underwriting in terms of number of deals (after Q4 2010). As the equity underwriting fees earned by investment banks depends on both the total size as well as the total number of deals completed over a period, we expect the banks to report a considerable increase in these revenues quarter-on-quarter. Thomson Reuters’ data estimates that equity underwriting fees for the industry as a whole this quarter was roughly 20% higher than what was seen for the previous quarter. In this article, we detail the equity capital market performance of the country’s five largest investment banks in Q2 2015, and also estimate the change in each of their fee revenues compared to Q2 2014 and Q1 2015.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

Relevant Articles
  1. Trailing S&P500 By 18% Since The Start Of 2023, What To Expect From Goldman Sachs Stock?
  2. Down 12% In The Last Twelve Months, Where Is Goldman Sachs Stock Headed?
  3. What To Expect From Goldman Sachs Stock?
  4. Goldman Sachs Stock Is Undervalued At The Current Levels
  5. Goldman Sachs To Edge Past the Consensus In Q1
  6. Goldman Sachs Stock Is Trading Below Its Intrinsic Value

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 Q2’15 Fees Q1’15 Fees Q2’14 Fees
Goldman Sachs $24.0 B 8.6% 111 $216 M $575 M $283 M $490 M
JPMorgan $22.4 B 8.0% 133 $169 M $423 M $373 M $450 M
Morgan Stanley $21.1 B 7.6% 129 $164 M $460 M $314 M $473 M
Bank of America $16.9 B 6.1% 112 $151 M $357 M $297 M $475 M
Citigroup $14.9 B 5.3% 102 $146 M $309 M $189 M $366 M

Goldman Sachs retained the top spot in terms of market share by deal size – a position it has maintained in nine of the last twelve quarters. The bank topped the list of book-runners in EMEA, Asia and Australia to achieve a market share of 8.6% for Q2. It must be mentioned here that Goldman’s rank in U.S. equity offerings fell from the #1 position over the first half of 2014 to #7 in the first half of 2015 as the bank was not involved in the two Actavis deals (raising $9.3 billion in total) which went through in February. However, Goldman was a part of most of the largest equity underwriting deals for the quarter – something that justifies the considerably higher average deal size for the premier investment bank compared to its competitors.

With an 8% market share, JPMorgan came in second, followed by Morgan Stanley with a 7.6% 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 (133) than any other bank – a feat it has achieved in ten of the last fourteen quarters. Citigroup’s equity capital markets remained sub-par for a second consecutive quarter, although the bank did improve its market share from 4.9% in Q1 to 5.3% in Q2.

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 appears to have pocketed more revenues than any other investment bank. The bank’s fee revenues suffered in Q1 because of its not being a part of the Actavis deals, but an exceptionally strong performance in Q2 has made up for the weak start of the year. Goldman is expected to report equity underwriting revenues that are more than double the figure for the previous quarter and 17% higher than what it earned a year ago.

All the banks except for Goldman are expected to earn lower fee revenues in Q2 2015 than they did in Q2 2014, although the difference is quite small for JPMorgan and Morgan Stanley. Compared to the previous quarter, we expect JPMorgan to earn around 13% more, while Morgan Stanley could get a healthy 46% boost. Citigroup and Bank of America should report a quarter-on-quarter improvement of 63% and 20%, respectively.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Global Equity Capital Markets Q2 2015, Thomson Reuters Deals Intelligence []