Strong Equity Capital Market Activity Boosts Underwriting Fees For Investment Banks In Q2

by Trefis Team
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Global equity capital markets built on the strong start this year to report another upbeat quarter in Q2 2018, with companies around the globe raising nearly $203 billion in fresh capital through IPOs and FPOs for the second quarter according to quarterly data published by Thomson Reuters. This represents a figure almost identical to that for the previous quarter as well as for the year-ago period. While China continues to witness strong growth in IPO activity, things also looked upbeat in the U.S. as well as Europe.

The total number of global equity issuances nudged slightly higher from 1,320 in Q1 2018 to 1,344 in Q2 2018. This was below the unusually high level of 1,712 in Q4 2017, though, as a rally in share prices across equity markets and extremely low volatility made the last quarter of 2017 an exceptionally strong period for companies looking to raise cash by issuing shares. To put things in perspective, the average number of deals has been roughly 1,250 over the last four years.

With the total equity underwriting volumes as well as the number of deals remaining largely unchanged compared to Q1 2018, the average deal size remained above $150 million for the second consecutive quarter.

Notably, larger equity underwriting deals generate lower fees per dollar raised compared to smaller deals – which would explain the depressed fee figure of $4.87 billion in Q1 2018 despite strong activity levels in the industry. Although equity capital market volume in Q2 was largely identical to Q1, there was a notable difference in terms of type of offerings. While Q1 saw a larger proportion of follow-on public offers (FPOs), Q2 saw a sharp increase in IPOs as well as in the issuance of convertible securities. This had a positive impact on fees for the period, with Thomson Reuters estimating that total equity underwriting fees earned by global investment banks for the first quarter was $5.26 billion. This represents a sequential increase of 8%, and is identical to the figure a year ago.

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 SachsJPMorganMorgan StanleyBank of America | Citigroup

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