Q2 2015 U.S. Investment Bank Round-Up: Advisory Services

The global M&A industry reported its best quarter since the economic downturn in terms of completed deal size for the second quarter of the year – making it an extremely profitable period for investment banks around the world. ((Global M&A Financial Advisory Q2 2015, Thomson Reuters Deals Intelligence)) Deals worth $820 billion closed over the quarter compared to $667 billion in the previous quarter. This clearly gave a boost to the advisory fees earned by investment banks, with data compiled by Thomson Reuters estimating an 18% increase in fees for the industry as a whole in Q2 2015 compared to Q1 2015.

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 Pocket Handsome M&A Fees As Industry Witnesses Strongest Quarter Since The Downturn. Now that these banks have reported their results for the second 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 Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

Investment banks helped companies around the world close deals worth $820 billion in the second quarter of 2015. This is the best performance by the industry since the economic downturn of 2008, and represents a 23% jump quarter-on-quarter as well as a 70% improvement year-on-year. Moreover, deals worth $1.4 trillion were announced over the quarter, because of which the first half of 2015 was also the best six-month period for the industry in terms of announced deals since 2007. Strong gains in advisory fees accompanied the higher level of activity, and Thomson Reuters estimated an 18% increase in fees for the industry as a whole in Q2 2015 compared to Q1 2015.

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 six quarters.

Goldman remains the undisputed leader in the global M&A arena – bagging the top spot in terms of fees generated for the seventeenth consecutive quarter. In fact, the investment bank has lost the top spot in only 5 quarters over the last ten years. Although Goldman’s fee revenue did not surpass the post-recession high of $961 million reported in the previous quarter, the $821 million figure for this quarter was still the fifth-highest in Goldman’s history (after Q3 2007, Q4 2007, Q1 2015 and Q1 2007). Goldman has also churned out at least half a billion dollars in advisory fees every quarter over the last five 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 has exceeded 75% for each of the last two quarters. 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.

Taken together, these five banks witnessed a sequential 17% decrease in advisory revenues for the quarter – in sharp contrast to the industry trend of an 18% quarter-on-quarter increase in fees. Morgan Stanley’s revenues shrank the least at 10%, followed by a 14% reduction in revenues for Goldman Sachs, JPMorgan and Citigroup. Bank of America witnessed the largest sequential reduction in advisory fees of almost 36%. This trend among these giants can largely be attributed to the fact that 12 of the 15 largest deals that were announced over the first six months of 2015 have yet to close. With the banks committing significant resources to these deals, the benefits on their top lines will be visible once these mega-deals are finalized over coming months.

The chart below provides a snapshot of quarterly advisory fees for each of these five banks since early 2005, and makes it easy to identify trends in these revenues over the last decade.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research