Global Debt Origination Fees For Q1 Were Notably Lower Than A Year Ago

The first quarter of the year is seasonally the strongest period for global debt capital markets, and with U.S. companies going through with their plans to raise debt as soon as possible to beat the Fed’s ongoing rate hikes, Q1 2018 turned out to be another strong period for the industry. Companies around the globe raised $1.78 billion worth of fresh debt over the quarter – better than the figures of $1.76 trillion and $1.62 billion for Q1 2017 and Q4 2017 respectively according to quarterly data published by Thomson Reuters.

The total number of global debt origination deals fell sequentially to 4,734 for Q1 2018. While this is higher than the figure of 4,561 seen a year ago, it is considerably lower than the average of ~6,250 for the previous three quarters. It should be noted, though, that the first quarter generally usually witnesses the largest debt origination deals, and also that the total number of deals over recent quarters have been unusually higher due to the urgency introduced by the Fed’s strong outlook for interest rate hikes. Q1 2018 in particular was affected by the $39.6 billion in debt raised by CVS as a part of its acquisition of Aetna – the third-largest bond issuance ever. This deal played a part in the sharp recovery in average deal size for Q1 2018 after being depressed over Q2-Q4 2017.

However, as larger debt origination deals generate lower fees per dollar raised compared to smaller deals, the higher average deal size for Q1 2018 led to an overall reduction in fees for the industry, as highlighted in the chart below. Data compiled by Thomson Reuters estimates that total debt origination fees earned by global investment banks for the first quarter was $6.7 billion. This is slightly below the $6.4 billion in fees the banks pocketed in Q4 2017 and much lower than the $7.2 billion figure for Q1 2017.

We will capture the changes in market share for the five largest U.S. investment banks – including Bank of America and Goldman Sachs – over recent quarters in a follow-up article, along with details of the expected increase/decrease in debt origination fees for each of these banks year-on-year and sequentially.

Details about how changes to Debt Origination 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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