Banks Pocket Healthy Underwriting Fees As Global Equity Market Remains Upbeat
The global equity market saw a flurry of activity over the first quarter of the year, with companies around the world raising nearly $190 billion through IPOs and follow-on offerings over the period. [1] Quarterly data compiled by Thomson Reuters shows that equity underwriting deals were at similar levels to what was witnessed for the same period last year. While the total deal size is almost 30% lower than the $264.4 billion figure for the previous quarter, it must be remembered that the Q4 2013 results were exaggerated by a surge in equity offerings after the Fed’s initial announcements of a tapering plan resulted in a weak Q3 2013 performance.
Continued optimism among companies and investors translated into higher equity underwriting fees for investment banks. Thomson Reuters’ data estimates a 27% jump in equity underwriting fees for the industry as a whole compared to Q1 2013, although a 21% decline is expected sequentially. In this article, we detail the equity capital market performance of the country’s five largest investment banks in Q1 2014, and also estimate the change in each of their fee revenues compared to Q1 and Q4 2013.
See the full Trefis analysis for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup
The table below summarizes the performance of the equity underwriting unit at each of the five largest U.S. investment banks based on data released by Thomson Reuters last week.
| Bank | Deal Size | Mkt. Share | # Deals | Avg. Deal Size | Q1’14 Fees | Q4’13 Fees | Q1’13 Fees |
| Goldman Sachs | $19.9 B | 10.6% | 93 | $214 M | $362 M | $573 M | $351 M |
| Morgan Stanley | $15.8 B | 8.4% | 97 | $163 M | $369 M | $470 M | $311 M |
| JPMorgan | $14.8 B | 7.8% | 116 | $128 M | $341 M | $434 M | $275 M |
| Bank of America | $14.3 B | 7.6% | 92 | $155 M | $240 M | $418 M | $267 M |
| Citigroup | $10.0 B | 5.3% | 82 | $122 M | $240 M | $313 M | $251 M |
Goldman Sachs retained the top spot in terms of market share by deal size – a position it has maintained in six of the last seven quarters. The bank topped the list of book-runners in EMEA and Asia to achieve a commanding 10.6% share for Q4. Goldman also has a substantially larger average deal size than any of its competitors – indicating that the bank played a role in most of the largest equity underwriting deals over the quarter.
With an 8.4% market share, Morgan Stanley came in second with a total deal size which was 21% lower than Goldman, followed by JPMorgan with a 7.8% market share. In terms of number of deals, JPMorgan ranked highest among all investment banks for the quarter, with the banking group playing a role in more deals (116) than any other bank – a feat it has achieved in six of the last nine quarters.
Notably, Citigroup’s poor equity capital markets run continued for the third consecutive quarter, with the bank garnering just above 5% of the market despite ranking #1 in terms of underwriting deals in the U.S. Consequently, the bank slipped to the 8th position in global standings, with German banking giant Deutsche Bank (NYSE:DB) and Swiss banks Credit Suisse (NYSE:CS) and UBS (NYSE:UBS) putting up better numbers.
In terms of equity underwriting fees, Morgan Stanley appears to have topped Goldman by pocketing more revenues than any other investment bank. The last time Morgan Stanley reported the highest fees among all banks was in Q2 2012. As Morgan Stanley has a lower average deal size than Goldman for the period, this would mean that the former played key roles in the underwriting process for many of its deals – allowing it to make more money in the process.
Before we detail the trends in imputed fees as shown in the table above, it should be noted that imputed fees are merely an estimate based on historical data about banks’ fees for a particular role in the equity underwriting process, and the numbers the banks actually report will likely differ from these figures. But these numbers do give a good indication of what to expect. All the banks are expected to earn lower fee revenues in Q1 2014 than what they did in Q4 2013. Compared to the same quarter last year, we expect JPMorgan to earn around 24% more, followed by a healthy 18% boost for Morgan Stanley. While Goldman’s fee revenues should be less than 5% higher, Bank of America and Citigroup will most likely report fees which are 5-10% lower than what they did a year ago.
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Notes:- Global Equity Capital Markets Q1 2014, Thomson Reuters Deals Intelligence [↩]