Q2 2015 U.S. Investment Bank Round-Up: Equity Underwriting

Investment banks have raked in impressive equity underwriting fees over recent quarters thanks to the flurry of activity in equity capital markets around the globe. Strong rallies across equity markets worldwide, as well as a mixed debt market, coaxed companies to raise significant capital through follow-on stock offerings this year. Data compiled by Thomson Reuters shows that the first half of the year saw companies raising more cash from equity capital markets than in any six-month period in history. ((Global Equity Capital Markets Q2 2015, Thomson Reuters Deals Intelligence))

Last month, we detailed the overall performance of the country’s largest investment banks in the global equity capital markets for Q2 2015 as a part of our article Strong Growth In Follow On Offerings Boosts Equity Underwriting Volumes In Q2. Using equity market data compiled by Thomson Reuters, we concluded that the equity underwriting fees for these banks would increase considerably quarter-on-quarter. 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

The global equity market saw companies around the world raise more than $279 billion through IPOs and follow-on offerings over the second quarter of the year. The total deal size figure represents an increase of 15% compared to the already strong figure for the first quarter of the year, although this is marginally lower than what was seen a year ago. Notably, the increase in total deal size for the second quarter was due to an increase in the total number of deals – unlike in the first quarter when the total deal size was elevated by a few large-sized deals. As the fee revenues for investment banks depend on the size as well as the number of deals they participate in, the second quarter was expected to be a much stronger period for them in terms of revenues. Thomson Reuters’ data estimates that equity underwriting fees for the industry as a whole was roughly 20% higher in Q2 2015 compared to the previous quarter.

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 six quarters.

The equity underwriting business has largely been dominated by Goldman Sachs over recent years – with the investment bank ranking #1 in terms of fee revenues for seven of the last eleven quarters. While JPMorgan held the top spot on two occasions (Q2 2013 and Q3 2013), Bank of America and Morgan Stanley achieved this in one quarter each (Q4 2014 and Q3 2014 respectively). Goldman reported more than half a billion in quarterly equity underwriting fees for a second consecutive quarter – making this the fourth time the investment bank achieved this feat in seven quarters.

Morgan Stanley reported the largest jump in these revenues quarter-on-quarter, as these fees swelled almost 60% sequentially. This helped the bank improve its standing from #4 in the first quarter to #2 in Q2 2015. In fact, Morgan Stanley edged past JPMorgan in this regard despite garnering a smaller share of the industry, and despite being a part of a lower number of deals than the latter. Both JPMorgan and Bank of America benefited from improved market conditions to report more than $400 million in revenues.

Taken together, the five largest banks earned $2.25 billion in equity underwriting fees in Q2 2015 – a 24% improvement sequentially but a 7% reduction year-on-year. This is largely in line with the 20% quarter-on-quarter increase estimated by Thomson Reuters for the industry as a whole.

The chart below provides a snapshot of quarterly equity underwriting fees for each of these five banks since early 2005, and makes it easy to identify trends in these revenues over the last decade.

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