Q3 2015 U.S. Investment Bank Round-Up: Debt Origination

The third quarter of the year was the worst period for debt capital markets in more than three years, as uncertainty over interest rates continued to weigh on the level of activity in the industry. ^[1] With debt origination volumes falling year-on-year for the fifth consecutive time in Q3 2015, revenues from debt origination deals for investment banks were expected to suffer considerably. Thomson Reuters estimated a 33% reduction in fees for the industry as a whole in Q3 compared to Q2, and in a previous article, we concluded that the country’s five largest investment banks would report a sharp decline in these fees.

In this follow up article, we present a side-by-side comparison of the actual debt origination fees pocketed 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) – while also discussing the trend seen in these fees over recent years.

See the full Trefis analysis for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

Companies around the world raised $1.23 trillion in new cash from global debt capital markets in Q3 2015 – about 7% below the $1.32 trillion figure for Q3 2014 and 12% lower than the $1.4 trillion raised in Q2 2015. 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 seven quarters.

JPMorgan retained the top spot in terms of debt origination fees among U.S. investment banks for a fourth consecutive quarter in Q3 2015 despite ranking third among all global banks in terms of market share (after Barclays and Bank of America). JPMorgan’s revenues of $840 million for the quarter were a good 17% higher than what the bank reported last year, and just 7% lower than the figure for the previous quarter – a commendable performance for a slow quarter. The fact that rival Bank of America came in at the #2 position despite ranking higher than JPMorgan in terms of market share would indicate that the latter had more substantial roles in the biggest debt origination deals that were completed in the quarter. Notably, these two banks have held the top two spots among all global investment banks nearly every single quarter since the economic downturn of 2008 – highlighting their strong grip in the industry. Goldman Sachs was the only other bank (besides JPMorgan) to report a year-on-year increase in debt origination fees – helping it nudge ahead of Citigroup to reach the #3 position for the first time since Q1 2014.

Total quarterly debt capital market fees for these five banks fell from $3.65 billion in Q2 2015 to $3 billion – a reduction of 17%. The sum was only marginally lower than what it was for the year-ago period. This means that the country’s largest investment banks fared much better than the industry as a whole, which witnessed a roughly 33% reduction in debt origination fees quarter-on-quarter.

The chart below provides a snapshot of quarterly debt origination fees for each of these five banks since early 2005, and makes it easy to identify trends in these revenues over the last decade. You would notice that Citigroup reported a negative debt origination figure for four quarters in 2007-2008, with the figure falling to -$2 billion in Q1 2008. This was a result of huge write-downs on several highly leveraged finance commitments.

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1. Global Debt Capital Markets Q3 2015, Thomson Reuters Deals Intelligence [↩]