Investment Bank Fees Sag As The M&A Market Remains Depressed

by Trefis Team
Goldman Sachs
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As the banks gear up for the earnings season by getting their performance figures for the second quarter in order just days before their scheduled earnings announcement dates, data released by Thomson Reuters as part of its quarterly M&A league offers a sneak peek into what can be expected from the banking giants when it comes to their advisory business.

Global investment banks completed M&A deals worth a total of $506 billion in Q2 2013 – just marginally higher than the $489 billion figure for the previous quarter, and almost 25% below the Q4 2012 tally of $667 billion. [1] This made H1 2013 the slowest first half in terms of M&A deals completed since the H1 2009. Also, the fact that 16,800 deals were announced globally over the last six-month period, makes it the slowest in terms of the number of announced deals since 2004.

The reduced activity level clearly impacted the fee revenues generated by the investment banks, with the M&A industry pocketing about 5% less fees as a whole in Q2, compared to Q1 2013. While the performance of individual banks (especially the biggest banks) may vary considerably compared to the industry trend, this fact should help set expectations from the banks’ advisory desks right.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

As mentioned above, the total size of M&A deals completed in the second quarter of the year was $506 billion. U.S. banks garnered the lion’s share of this figure with three of the top five banks on the list being U.S. banking giants. The non-U.S. bank figuring in the list are Barclays (NYSE:BCS) and Credit Suisse (NYSE:CS).

The table below summarizes the Q2 performance of the M&A unit at each of the five U.S. banking giants, according to Thomson Reuters’ data for Q1 and Q2 2013. Do note that most deals employ more than one bank, which is why the sum of market shares is well over 100%.

Bank Rank Deal Size Mkt. Share # Deals Avg. Deal Size Q2’13 Imputed Fees Q1’13 Imputed Fees
JPMorgan 1 $233.0 B 46.1% 50 $4.66 B $260 M $229 M
Goldman Sachs 2 $206.1 B 40.8% 76 $2.71 B $361 M $361 M
Morgan Stanley 3 $123.9 B 24.5% 69 $1.79 B $322 M $211 M
Citigroup 5 $96.1 B 19.0% 55 $1.75 B $234 M $185 M
Bank of America 6 $95.3 B 18.8% 52 $1.83 B $244 M $215 M

JPMorgan (NYSE:JPM) closed more deals than any of its competitors in the industry over the quarter with a role to play in deals worth 46% of the total M&A deals that completed last quarter. Goldman Sachs (NYSE:GS) came in at second place (an improvement to the #3 rank for Q1) in terms of market share, although the global investment bank played a part in more deals (76) than any other bank for the period.

Interestingly, the average deal size for JPMorgan at $4.7 billion is significantly higher than that for the others, which means that the bank was part of the biggest deals that were completed over the period. This is easily confirmed given that the bank played major roles in the Heinz, Virgin Media and NBC deals which closed this quarter – together worth almost $70 billion.

Talking about the most relevant aspect as far as both the banks and the investors are concerned – the fees income generated by the banks from these deals – Goldman continues to make big bucks with imputed fees of $361 million. 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 complex M&A advisory process. Although the banks report numbers which often differ quite a bit from these figures, the imputed fees is a good indicator of what to expect.

As is evident from the comparison of fees for the first and second quarters of 2013, each of the five largest U.S. banks made more money from the business despite the 5% overall decline in total fee revenues for the industry with Morgan Stanley recording the largest jump in M&A fees of more than 50%.

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  1. Global M&A Financial Advisory Q2 2013, Thomson Reuters Deals Intelligence []
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