Q1 2014 U.S. Investment Banking Round-Up: Equity Underwriting

Last month, we detailed the overall performance of the country’s largest investment banks in the global equity capital markets for Q1 2014, as a part of our article Banks Pocket Healthy Underwriting Fees As Global Equity Market Remains Upbeat. Using equity market data compiled by Thomson Reuters, we estimated the quarter-on-quarter changes in equity underwriting fees for these banks and concluded that each of their fee figures would be lower this quarter compared to the previous one, though better than what they were a year ago. In this follow-up article, we look at the actual equity underwriting fees reported by the investment banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – and highlight the trends that emerge on a side-by-side comparison of these figures.

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

Global equity markets demonstrated a marked turnaround in Q4 2013, after remaining depressed for several quarters. As a result, equity market activity in Q1 2014 appears soft despite being much better than the level observed in Q1 2013 in terms of number of deals completed. The fluctuating activity level was the reason that Thomson Reuters estimated a 21% decline in equity underwriting fees for the industry as a whole in Q1 2014 compared to Q4 2013, although a 27% jump was expected year-on-year.

The table below was compiled based on the banks’ earnings announcements, and shows how much in equity underwriting fees each of the five banks earned for each of the last five quarters. One thing that stands out here is how closely the reported figures follow the expected industry-level trend. For the five U.S. banks, these fees fell 23% sequentially, although they increased 15% from the year-ago period.

The equity underwriting business has largely been dominated by Bank of America in terms of fees over the last three years – with the bank ranking #1 in this regard for six of the last 13 quarters, followed by Goldman Sachs (four out of 13) and JPMorgan (three out of 13). But the diversified banking group fell to fourth place for the first quarter. Having displaced JPMorgan from the top spot in Q4 2013 with an unprecedented $622 million in equity underwriting fees, Goldman Sachs held on to this position in Q1 2014 with over $400 million in fee revenues. The strong performance can be largely attributed to the fact that the investment bank had the largest share of the equity market for the period in terms of deal size (10.3%).

Notably, Morgan Stanley came in at the third position this time around despite ranking second among these banks in terms of deal size as well as number of deals participated in for the quarter. This would indicate that the bank likely played secondary roles in some the biggest IPOs and follow-on offerings over the first three months of the year. Also, JPMorgan participated in more deals in Q1 (116) than any other investment bank worldwide, but its lower average deal size is an important factor responsible for its comparatively lower revenue figures.

While the top three ranked banks on the list reported numbers in line with the industry trend of Q1 2014, with fee revenues somewhere between those for Q1 2013 and Q4 2013, Bank of America and Citigroup did not. Bank of America’s results were well below average, with the bank reporting its lowest equity underwriting fee revenues since Q4 2012. These revenues slid 32% quarter-on-quarter due to a decline in the bank’s market share in terms of deal size as well as number of deals. On the other hand, Citigroup had a relatively strong quarter, with the globally diversified banking group reporting its second-best equity capital market performance since the downturn of 2008 (after Q4 2010).

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