Origination Fees At Banks Jump In Q2 As Debt Market Activity Recovers

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The second quarter of the year saw a notable improvement in global debt activity, with companies around the globe raising $1.59 trillion over the period – 10% higher than the $1.43 trillion figure seen in Q2 2013. ((Global Debt Capital Markets Q2 2014, Thomson Reuters Deals Intelligence)) Although the total deal size increased by less than 1% sequentially, it should be noted that the debt industry is generally strongest in the first quarter. The recovery in debt capital markets is also highlighted by the fact that quarterly data compiled by Thomson Reuters shows a 22% increase in the total number of global debt origination deals – from 3,265 in Q1 2014 to 3,971 in Q2 2014.

As the debt origination fees a bank reports are affected by the number of deals it participates in, the size of each deal and the actual role the bank plays in it, the marked increase in the number of deals points to higher fee revenues for the industry. Thomson Reuters’ data captures this by estimating a 14% increase in fees for the industry as a whole compared to the previous quarter. In this article, we detail the performance of the five largest debt originators in the world in Q2 2014 – namely JPMorgan (NYSE:JPM), Barclays (NYSE:BCS), Citigroup (NYSE:C), Deutsche Bank (NYSE:DB) and Morgan Stanley (NYSE:MS) – and also estimate how their fee revenues changed compared year-on-year as well as quarter-on-quarter.

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The table below summarizes the performance of the debt origination units at each of these banks based on data compiled by Thomson Reuters. It should be noted that the fees for Q2 2013 and Q1 2014 mentioned here are imputed fees and not the actual figures reported by the bank.

Bank Proceeds Mkt. Share # Deals Avg. Deal Size Q2’14 Fees Q1’14 Fees Q2’13 Fees
JPMorgan $121.5 B 7.7% 464 $262 M $533 M $426 M $420 M
Deutsche Bank $114.7 B 7.2% 442 $260 M $435 M $310 M $300 M
Barclays $98.9 B 6.2% 359 $275 M $392 M $279 M $266 M
Citigroup $98.8 B 6.2% 375 $264 M $444 M $335 M $310 M
Morgan Stanley $82.7 B 5.2% 361 $229 M $425 M $298 M $303 M

JPMorgan has maintained the top spot among all debt originators for ten straight quarters now. The bank also ranked at the top in terms of number of deals, as it participated in 464 of 3,971 deals  for Q1 2014. This represents an 11.7%-share of the market – a sequential improvement from 8.5% in Q2 2013. It should be noted that large debt origination deals normally have more than one bank working on them. Accordingly, the market share in terms of deal volume as well as the number of deals are not mutually exclusive.

Deutsche Bank did well to jump from the fifth spot on the list to the second, with its market share improving from 6.1% in Q1 2014 to 7.2% in Q2 2014. Playing a role in 442 deals over the period, the bank also came a close second to JPMorgan by that measure – garnering a 11% share of all deals that were completed. Barclays and Citigroup reported a near identical performance with roles in deals worth just under $100 billion for a market share of 6.2% each.

The average deal size among the top performers in the debt capital market fell from almost $300 million in the previous quarter to just under $260 million. This is a direct result of the much higher number of deals in Q2 despite origination volumes remaining almost constant compared to Q1. Although Barclays’ strength in Europe and Asia helped it achieve an average deal size of $275 million which is the highest among these five banks, Goldman Sachs (NYSE:GS) fares better globally with a figure of $284 million. In fact, Goldman has reported the highest average deal size figures for 11 of the last 14 quarters – indicating that the bank more often than not plays a role in the largest debt origination deals that go through over a period.

As far as revenue from these debt offerings is concerned, JPMorgan emerges on top in that category too, with imputed fees of $533 million. That’s 27% higher than the figure for the same quarter last year and a 25% improvement quarter-on-quarter. This trend is evident across the largest investment banks, as Q2 2014 figures are estimated to be much better than those for Q2 2013 and Q1 2014. On average, these five banks are likely to report debt origination fees which are 35% higher than those for the previous quarter and a good 40% higher than revenues for the year-ago period. This means that the biggest banks handsomely outperformed the industry as a whole, which is expected to see a hike of 14% compared to Q1 2014. Note that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the debt origination 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.

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