Uncertainty Over Fed’s Tapering Plans Hits Debt Origination Figures For Q3

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The global debt industry saw companies raise $1.28 trillion through bond issues over the third quarter of the year as captured by Thomson Reuters in its quarterly report for the industry. [1] This is a 11% decline over the $1.43 trillion that companies raised in Q2 2013 – not really a surprise given that companies grew wary of raising money through debt markets towards the end of Q2 itself when the Fed announced plans to begin cutting down or ‘tapering’ its bond repurchase program by the end of the year. This shows through quite clearly the fact that the number of debt origination deals for the quarter was 3,442 – a good 23% below the figure of 4,466 deals for Q2 2013, and the lowest figure for a quarter since Q3 2011.

The reduction in the number as well as size of debt origination deals had an obvious impact on the fees investment banks took home. Thomson Reuters’ data estimates a 11% decline in fees for the industry as a whole. Taken together with the fact the banks’ debt origination fees shrank 20% last quarter due to the large number of small deals that did not generate much revenue, Q3 2013 was one of the least profitable quarters for the banks in the recent past, when it comes to debt capital market services.

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JPMorgan (NYSE:JPM) continues to maintain a tight grip on the debt capital market with the bank helping companies raise more money through debt originations than any of its competitors. Deutsche Bank (NYSE:DB), Citigroup (NYSE:C), Barclays (NYSE:BCS) and Goldman Sachs (NYSE:GS) are the other investment banks which feature in the list of top five debt originators for the quarter.

The table below summarizes the performance of the debt origination unit at each of these banks based on data compiled by Thomson Reuters.

Bank Rank Proceeds Mkt. Share # Deals Avg. Deal Size Q3’13 Fees Q2’13 Fees Q1’13 Fees
JPMorgan 1 $95.6 B 7.5% 361 $265 M $470 M $420 M $575 M
Deutsche Bank 2 $94.8 B 7.4% 358 $265 M $313 M $300 M $405 M
Citigroup 3 $81.3 B 6.4% 308 $264 M $354 M $310 M $428 M
Barclays 4 $78.4 B 6.1% 253 $310 M $256 M $266 M $327 M
Goldman Sachs 5 $74.1 B 5.8% 264 $281 M $256 M $292 M $356 M

JPMorgan has maintained the top spot among all debt originators around the world for seven straight quarters now. The bank also ranked at the top in terms of number of deals as it participated in 361 of 3,442 deals for Q2 2013. This represents a share of 10.5% of the market – an improvement over the 8.5% figure for the last quarter. It must be noted here that the large-sized debt origination deals normally have more than one bank working on them. Hence, the market share in terms of deal volume as well as the number of deals are not mutually exclusive.

Morgan Stanley, which pushed Bank of America out of the list of top 5 debt originators last quarter, was itself beaten to the post by Goldman Sachs. Goldman has been focusing considerably on debt capital markets over the recent years, and the efforts have seen it steadily gain market share from competitors.

The average deal size among the top performers in the debt capital market remained roughly around $270 million with Barclays maintaining the highest figure of $310 million (sequentially down from $288 million for Q1). This is largely a result of the British bank’s strength in Europe and Africa.

As far as revenue from the debt offerings are concerned, JPMorgan emerges on top in that category too, with imputed fees of $470 million for the period being a good 33% ahead of the nearest competitor Citigroup ($354 million). In fact, the top-three ranked banks are actually expected to report higher debt underwriting fee revenues in Q3 compared to Q2 figures according to Thomson Reuters’ estimates for imputed quarterly fees – bucking the trend of an marked decline in fees at the industry level.

It must be noted here 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 would differ from these figures. But these numbers do give a good indication of what to expect.

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Notes:
  1. Global Debt Capital Markets Q3 2013, Thomson Reuters Deals Intelligence []
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