Investment Banks Set To Report Lower Q1 Equity Underwriting Fees Despite Upbeat Market Conditions
Global equity capital markets started the year 2018 on a positive note, with companies around the globe raising more than $200 billion in fresh capital through IPOs and FPOs for the first quarter, according to quarterly data published by Thomson Reuters. This represents a gain of 3% compared to the figure for the previous quarter, and an increase of 4% from the figure a year ago. As has been the trend over recent quarters, a bulk of the industry’s growth came from the Asia-Pacific region, even as a modest increase in activity levels in the U.S. and Latin America more than made up for a decline in activity in Europe.
The total number of global equity issuances normalized to 1,320 for Q1 2017 after jumping to the unusually high level of 1,712 in the previous quarter (as opposed to the average figure of ~1,250 since Q1 2014). The sequential decline can be attributed to the fact that the rally in share prices across equity markets, coupled with extremely low volatility, made Q4 2017 an exceptionally good quarter for companies to raise cash by issuing shares. However, the increase in total equity underwriting volumes and a lower number of deals gave a boost to the average deal size figure for the quarter, which crossed $150 million for the first time since Q3 2016.
As larger equity underwriting deals generate lower fees per dollar raised compared to smaller deals, the elevated average deal size for Q1 2018 points to a reduction in fees for the industry, as highlighted in the chart below. Data compiled by Thomson Reuters estimates that total equity underwriting fees earned by global investment banks for the first quarter was $4.87 billion. This is slightly below the $5.05 billion figure for Q4 2017 and $5.07 billion for Q1 2017.
We will capture the changes in market share for the five largest U.S. investment banks over recent quarters in a follow-up article, along with details of the expected increase/decrease in equity underwriting fees for each of these banks year-on-year and sequentially.
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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