Q3 2013 U.S. Investment Bank Round-Up: Advisory Services

by Trefis Team
Goldman Sachs
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Last month, we detailed our expectations for the advisory desks at the largest U.S. investment banks in our article Advisory Fees For Banks Decline In Q3 As Slump In Global M&A Activity Continues – just before the banks released their performance figures for the third quarter of the year. Based on data compiled by Thomson Reuters about M&A deals that were completed over the third quarter, we concluded that among these U.S. investment banking giants only JPMorgan (NYSE:JPM) made more money in Q3 as advisory fees compared to Q2, whereas competitors Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:BAC) and Citigroup (NYSE:C) had to settle for lower advisory revenues. Fees from the M&A industry as a whole shrank nearly 15% in Q3, and we expected the trend to reflect in the results for the biggest players.

With these banks having reported their results for the third quarter a while back, we take a look at how they fared with respect to each other in terms of actual advisory fees.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

The trend of slowing M&A activity that has been witnessed since early this year continued in Q3 2013, with global investment banks completing M&A deals worth a total of $455 billion over the quarter – 11% below the figure for Q2 2013 and about 32% below the Q4 2012 tally of $667 billion. The nine-month period for 2013 was also the slowest in terms of number of deals announced (25,439) and completed (19,578) since the first nine months of 2005.

The marked decline in activity impacted the fee revenues generated by investment banks, with the M&A industry pocketing about 15% less in fees as a whole in Q3 compared to Q2 2013. And unlike Q2 2013 when each of the five largest banks bucked the trend of falling total fees for the industry, only one bank (JPMorgan) managed revenue growth this time around.

The table below was compiled based on the banks’ earnings announcements, and shows how much in advisory fees each of the five banks earned for each of the last ten quarters.

($ mil) Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Goldman Sachs 637 523 470 489 469 509 508 484 486 423
JPMorgan 601 365 397 281 356 389 465 255 304 322
Morgan Stanley 533 413 406 313 263 339 454 251 333 275
Bank of America 382 273 273 203 341 221 301 257 262 256
Citigroup 198 184 159 111 202 196 206 204 215 167

Goldman remains the undisputed leader in the global M&A arena – bagging the top spot for the tenth consecutive quarter. However, the investment bank had to settle for advisory fees of $423 million in Q3 after churning out revenues in the vicinity of half a billion dollars each quarter since Q2 2011.

Goldman also regained the top spot in terms of market share from JPMorgan, while retaining the #1 position in terms of number of deals participated in. This strong position that Goldman enjoys in the industry is the reason that we expect its advisory revenues to continue to grow in the future as shown in the chart below.

JPMorgan and Morgan Stanley had a near-identical quarter in terms of both deal size and number of deals. However, JPMorgan made more money in the process, likely because it had larger roles in the biggest deals that closed in Q3. Put together, these five banks raked in $1.44 billion in advisory revenues for the quarter, which is 10% lower than the $1.6 billion they earned in Q2.

With global economic conditions for the last quarter of the year expected to be quite similar to what was seen in Q3, we expect continued lukewarm demand for M&A advisory services in Q4.

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