Morgan Stanley’s Q1 Equity Underwriting Fees To Get A Boost From Strong Showing In U.S.

The five largest U.S. banks made the most of upbeat equity market conditions over the first quarter of the year – helping companies around the world raise almost $79 billion in fresh equity for the period. This represents almost 40% of the $200.7 billion in total equity underwriting deals completed in Q1 2018 (as estimated by Thomson Reuters), and was the best performance in this regard by the U.S. investment banking giants since Q3 2014 (when their market share was 40.3%).

Morgan Stanley Remains At The Top

Morgan Stanley did exceptionally well yet again to help raise more equity capital than any other bank globally for the fourth consecutive quarter. Notably, the investment bank’s market share of 10.7% is the highest for any bank in a quarter since Goldman captured a market share of 11.9% in Q4 2013. While Morgan Stanley’s expertise in tech IPOs has given it an edge over competitors over recent years, the bank has also gained from its strong showing in the Asia Pacific region (where global underwriting volumes have seen considerable growth).

You can see how changes to Morgan Stanley’s share of the equity underwriting industry can impact our price estimate for the bank’s shares by modifying the chart below.

The chart below captures the total size of equity capital market deals completed by the five largest U.S. investment banks since Q1 2017. The green-to-red shading for figures along a row show the variations in deal size for a particular bank over this period.

Equity underwriting volumes for individual banks were taken from Thomson Reuters’ investment banking league tables for the last five quarters. The table below captures the respective market shares for each of these banks over this period. The green-to-yellow shading for figures in a quarter should help compare the relative standings of these 5 banking giants in a particular quarter.

It should be noted that the largest equity capital market deals (IPOs and FPOs) employ more than one investment bank, and the market share figures here factor in the proportion of the total proceeds generated by a particular bank.

Improvement In Deal Volume Should Lead To Higher Fees

Thomson Reuters estimates the combined equity underwriting fees for these five U.S. investment banks to increase to $1.57 billion from $1.46 billion in the previous quarter – a gain of 7.5% – with their wallet share increasing from 29% in Q4 2017 to over 32% in Q1 2018. The sequential improvement in fees can be attributed primarily to improved deal volumes in their core market of the U.S. However, on a year-on-year basis, these banks are expected to report a ~5% reduction in fees compared to Q1 2017, as they worked on a lower number of deals this time around (436) compared to a year ago (465). As the number of deals worked on affects fee revenues more meaningfully than the overall deal size, a lower deal number will mitigate year-on-year gains from higher deal volumes.

While Morgan Stanley and Goldman Sachs are expected to report the highest gains in these revenues year-on-year as well as quarter-on-quarter, JPMorgan is likely to report a sizable decline.

Details about how changes to Equity Underwriting Fees (and other Investment Banking Fees) affect the share price of these banks can be found in our interactive model for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

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