Why Has Citigroup Trailed Its Peers In Terms Of Investment Banking Fees For The Last Year?

The five largest U.S investment banks reported nearly $7.7 billion in total investment banking fees for Q3 2018 – a figure that includes their M&A advisory, equity underwriting and debt origination fees for the seasonally slow third quarter of the year. This represents a 12% reduction in total investment banking fees for these banks, compared to the figure of $8.8 billion in the previous quarter, but is almost identical to the figure a year ago. The sequential decline in these fees can be explained by the fact that there was a noticeable reduction in M&A advisory, equity capital market as well as debt capital market activity for the third quarter compared to the rather upbeat Q2 – primarily because of the Fed’s ongoing rate hike process and looming fears of a global trade war. Also, it should be noted that the figure for Q2 2018 was the highest ever for these five banks. Considering the fact that average combined fees have been around $7.3 billion over the last 20 quarters, Q3 2018 was a solid quarter for the banks.

Notably, Citigroup reported total investment banking fees of less than $1.2 billion in Q3 2018 – making it #5 among these banks for the fourth consecutive quarter. In fact, Citigroup has figured at the bottom of this list in 25 of the last 31 quarters (since Q1 2011) despite having a strong presence in the global debt origination industry as it plays a much smaller role in the lucrative M&A advisory business compared to its peers.

We capture the trends in these fees in recent years in our interactive dashboards on M&A advisory fees, equity underwriting fees as well as debt origination fees, while also forecasting how these revenues are likely to change in 2018. We highlight key observations related to their total advisory & underwriting fees below.

Total investment banking fees for the industry are taken from Thomson Reuters’ latest investment banking league tables, and includes fees from M&A advisory, equity underwriting, debt origination and loan syndication activities.

The table below details the trend in total investment banking fees for each of these banks in the last five quarters. The green-to-yellow shading along a column highlights the relative performance of each bank in any given quarter. Notably, these banks usually capture around 33% of the global investment banking wallet share for any given quarter. However, their wallet share fell from over 35% in Q1 2017 to just 29% in Q4 2017 due to a jump in capital markets deals in developing countries (China in particular), where local players enjoy a larger market share. A notable improvement in market conditions in U.S. has helped their market share recover to around 32% over recent quarters, though.

Goldman emerged at the top of the list in terms of total investment banking fees for Q3 2018 thanks to one of its best-ever performances in the M&A advisory industry. The investment bank also did very well in the equity capital markets, which more than made up for a lukewarm debt origination showing – enough to nudge it past JPMorgan.

That said, JPMorgan has largely dominated the #1 position since the economic downturn (with the bank also figuring at the top of the list for the five-quarter period from Q3 2016 to Q3 2017) due to its extremely strong presence in U.S. debt industry. As debt origination fees normally make up roughly 50% of total investment banking fees for these U.S. banks (with M&A advisory fees contributing ~30% and the remaining 20% coming from equity underwriting fees), a strong performance in the debt capital markets has a visible impact on a bank’s standing in this list.

Details about how changes to 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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