Debt Origination Figures Remain Depressed In Q4

by Trefis Team
Deutsche Bank
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The global debt market saw companies raise $1.33 trillion through bond issues over the fourth quarter of 2013, as captured by Thomson Reuters in its quarterly report for the industry released last week. [1] This figure is essentially the same as the $1.28 trillion figure for Q3 2013 as well as the $1.35 trillion for Q4 2012. While the cyclical debt industry is known to be slow in the fourth quarter of the year as many companies prefer to delay decisions on capital raising to the first quarter, the uncertainty surrounding the Fed’s tapering plan for a majority of the period also contributed to the slowdown in Q4 2013 debt activity. The fact that the number of debt origination deals for the quarter (3,404) was the lowest figure for a quarter since the particularly bad Q3 2011 only reinforces this view.

As the number, as well as size, of debt origination deals remains depressed, it is likely to adversely impact the fees investment banks took home. Thomson Reuters’ data estimates a 7% decline in fees for the industry as a whole compared to the previous quarter. This marks a sequential reduction in the industry’s total fee income for the third consecutive quarter – after a 20% reduction in Q2 and a 11% reduction in Q3 – making Q4 2013 one of the least profitable quarters for the banks over recent years in terms debt capital market services.

See the full Trefis analysis for Deutsche BankBarclaysJPMorganMorgan StanleyCitigroup

JPMorgan (NYSE:JPM) continues to maintain a tight grip on the debt market, with the bank helping companies raise more money through debt originations than any of its competitors. Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), Citigroup (NYSE:C) and Bank of America-Merrill Lynch (NYSE:GS) are the other investment banks which feature in the list of top five debt originators for the quarter.

The table below summarizes the performance of the debt origination unit at each of these banks based on data compiled by Thomson Reuters. Do note that the fees for Q3 mentioned here are imputed fees, and not the actual figures reported by the bank.

Bank Rank Proceeds Mkt. Share # Deals Avg. Deal Size Q4’13 Fees Q3’13 Fees
JPMorgan 1 $98.3 B 7.4% 395 $249 M $373 M $470 M
Deutsche Bank 2 $84.4 B 6.3% 355 $238 M $301 M $313 M
Barclays 3 $82.1 B 6.2% 310 $265 M $230 M $256 M
Citigroup 4 $76.8 B 5.8% 329 $233 M $321 M $354 M
Bank of America 5 $70.1 B 5.3% 341 $206 M $350 M $413 M

JPMorgan has maintained the top spot among all debt originators for eight straight quarters now. The bank also ranked at the top in terms of number of deals as it participated in 395 of 3,404 deals  for Q4 2013. This represents a share of 11.6% of the market – a sequential improvement over the 8.5% figure in Q2. It must be noted here that the large-sized debt origination deals normally have more than one bank working on them. Accordingly, the market share in terms of deal volume as well as the number of deals are not mutually exclusive.

The fifth spot on the list saw quite some change over the year, with the position shifting from Bank of America in Q1 to Morgan Stanley in Q2 to Goldman Sachs in Q3 to finally Bank of America again in Q4.

The average deal size among the top performers in the debt capital market remained around $240 million, with Barclays maintaining the highest figure of $265 million (well below $310 million for Q3). This is largely a result of the British bank’s strength in Europe and Africa.

As far as revenue from these debt offerings is concerned, JPMorgan emerges on top in that category too. However, the diversified banking group’s imputed fees of $373 million for the period are 20% lower than the figure for the previous quarter. In fact, all the banks here other than Barclays are expected to report Q4 debt origination fees which are at least 10% lower than their figures in Q3. This would mean that the largest investment banks fared worse than the industry as a whole in terms of total fee revenues earned.

It must be noted here that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the debt origination process, and the numbers the banks actually report will likely differ from these figures. But these numbers do give a good indication of what to expect.

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  1. Global Debt Capital Markets Q4 2013, Thomson Reuters Deals Intelligence []
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