Q2 2014 U.S. Investment Bank Round-Up: Debt Origination

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The global debt capital markets reported a surge in activity over the second quarter of the year, with total debt origination volumes for the period surpassing the figure for the seasonally-inflated first quarter. ((Global Debt Capital Markets Q2 2014, Thomson Reuters Deals Intelligence)) As we detailed in our article Origination Fees At Banks Jump In Q2 As Debt Market Activity Recovers last month, this was likely to result in a sequential 14% hike in debt origination fees for the industry as a whole – due to the fact that the number of deals for the quarter was one of the highest since the economic downturn of 2008.

In this follow up article, we present a side-by-side comparison of the actual debt origination fees reported by the country’s five largest investment banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – for the quarter and also take an in-depth look at the trend seen in these revenues over recent quarters.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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The global debt capital markets grew to $1.59 trillion in size in Q2 2014 – slightly higher than the $1.57 trillion figure for the first quarter of the year and 10% above the $1.43 trillion seen a year ago. Much of this growth can be attributed to the increase in the number of deals for Q2 – a figure which jumped from 3,265 in Q1 2014 to 3,971 in Q2 2014. The higher number of deals and the overall larger deal volume indicated a very profitable quarter for investment banks as far as debt origination services were concerned.

The table below was compiled based on the banks’ earnings announcements and shows the debt origination fees that the five banks earned over the last six quarters.

(in $ mil) Q1’13 Q2’13 Q3’13 Q4’13 Q1’14 Q2’14
JPMorgan 905 956 855 801 708 899
Bank of America 1,022 987 810 986 1,025 891
Citigroup 634 558 498 488 578 748
Goldman Sachs 694 695 467 511 660 730
Morgan Stanley 411 418 481 495 485 525
Total 3,666 3,614 3,111 3,281 3,456 3,793

JPMorgan inched past Bank of America to pocket more fees from debt origination services than any other bank in Q2. The diversified banking group saw these revenues shoot up 27% over the period after witnessing a decline for three consecutive quarters. Although JPMorgan garnered the largest share of the global debt market for the tenth consecutive quarter in Q2, revenues in earlier quarters suffered due to the fact that the bank was confined to a secondary role in some of the biggest deals. This was clearly not an issue in Q2, allowing the bank to rake in almost $900 million in fees.

Among the U.S. investment banking giants, Bank of America was the only one to report a sequential decline in these revenues. The bank had a good start to the year, raking in more than a billion dollars in debt origination fees for the first quarter, but this figure fell 13% in Q2 to under $900 million. Bank of America has made more money helping companies raise debt capital than any other investment bank in ten of the last 14 quarters (the exceptions being Q1 2011, Q1 2012, Q3 2013 and the most recent Q2 2014). Notably, Bank of America ranked sixth among investment banks in terms of market share in Q2. So the relatively high revenue figure suggests that the bank landed the most important (and hence best-paying) roles in the largest debt origination deals.

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