U.S. Investment Banks Benefit As Global M&A Industry Ends 2015 On A High

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The global M&A industry saw investment banks help companies close deals worth $807 billion for the fourth quarter of the year, according to data released by Thomson Reuters. ((Global M&A Financial Advisory Q4 2015, Thomson Reuters Deals Intelligence)) Although this is marginally lower than the $817 billion figure a year ago, and also 7% below the figure for the previous quarter, this was the third consecutive period for which the size of global completed deals exceeded $800 billion. Moreover, deals worth $1.5 trillion were announced over the quarter – a sharp improvement over the $1 trillion figure for Q3 2015. This made 2015 the best year in terms of announced deals since Thomson Reuters began keeping records in 1980. The total number of announced deals also jumped from 10,707 in Q3 2015 to 11,131 in Q4 2015, while completed deals increased from 8,182 to 8,280 over the same period.

Despite the higher number of closed deals, the lower value of deals closed is expected to weigh on investment banks’ advisory fees for the quarter. Thomson Reuters’ data indicates a 13% reduction in fees for the industry as a whole in Q4 2015 compared to Q3 2015. However, these revenues for full-year 2015 are expected to be a good 25% higher than that of 2014. While the performance of individual banks (especially the biggest banks) may vary considerably compared to the industry trend, these estimates should help set expectations for the banks’ advisory desks as the earnings season kicks off later this week.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

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As mentioned above, the total size of M&A deals completed in the first quarter of the year was $807 billion. U.S. banks garnered a strong share of this figure, with Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) taking up the top three spots in the rankings. The table below summarizes the Q4 performance of the M&A unit at each of the five U.S. banking giants, according to Thomson Reuters’ data. It should be noted that most deals employ more than one bank, which is why the sum of market shares for just these 5 banks is almost 100%.

Bank Deal Size Mkt. Share # Deals Avg. Deal Size Q4’15 Fees Q3’15 Fees Q4’14 Fees
JPMorgan $196.8 B 24.4% 81 $2.43 B $492 M $463 M $408 M
Morgan Stanley $196.3 B 24.3% 123 $1.60 B $529 M $479 M $502 M
Goldman Sachs $187.8 B 23.3% 96 $1.96 B $674 M $659 M $570 M
Bank of America $90.2 B 11.2% 68 $1.33 B $308 M $397 M $352 M
Citigroup $82.6 B 10.2% 67 $1.23 B $250 M $255 M $228 M

JPMorgan closed more deals than any of its competitors in the industry over Q4, with the diversified banking giant playing a role in deals worth almost 25% of the total M&A deals that were completed. Morgan Stanley came in at a close second with a marginally lower market share. After an exceptionally strong showing in Q3, Goldman slipped to the #3 position in the list. The bank helped close deals worth under $190 billion in Q4 compared to a whopping $333 billion in Q3. Notably, Goldman has held the top spot in 8 of the last 10 quarters (with the exception of Q4 2014 and Q4 2015).

In terms of number of deals closed, Morgan Stanley stands out with a contribution to 123 deals that closed over the quarter – displacing Goldman from the #1 position after twelve consecutive quarters. Goldman was also pushed to the second spot in terms of average deal size by JPMorgan, with the latter garnering a strong market share despite participating in a smaller number of deals. Goldman’s relatively weak performance this time around is explained by the fact that the five biggest deals announced in 2015 (total value of $540 billion) are yet to close, with Goldman currently working on each one of them.

Goldman is still expected to top the list in terms of advisory revenues, though, with imputed fees exceeding $650 million for the fourth consecutive quarter. This is slightly higher than the figure for the previous quarter – something that can most likely be attributed to the fact that the investment bank took meatier roles in the deals that closed in Q4. It should be noted that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the complex M&A advisory process. Although the banks report numbers which often differ quite a bit from these figures, imputed fees are generally a good indicator of what to expect.

As is evident from the comparison of fees for Q4 2015 and Q4 2014, all the banks (except for Bank of America) are expected to report a notable increase in these revenues year-on-year. Moreover, Goldman Sachs, Morgan Stanley and JPMorgan are likely to report a quarter-on-quarter increase in advisory fees – bucking the trend of a 13% reduction in this figure sequentially for the industry as a whole as estimated by Thomson Reuters.

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