U.S. Investment Bank Review 2012: Debt Underwriting

by Trefis Team
JPMorgan Chase
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The global debt capital market picked up considerably in 2012, after suffering from extremely poor demand over the second half of 2011 in the wake of deteriorating economic conditions in Europe. Data compiled by Thomson Reuters shows that the size of the global debt capital market in 2012 was $5.6 trillion – a good 10% higher than the figure for 2011 and the highest since 2009. [1] More importantly, the spurt in higher demand for high yield corporate debt, helped global investment banks pocket handsome fee revenues, with Thomson Reuters estimating a 28% increase in debt underwriting fees for the year.

In this article, which is a part of our series on the relative performance of the country’s biggest investment banks, we focus on the debt underwriting unit at Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C). See also U.S. Investment Bank Review 2012: Equity Underwriting

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

Performance By Market Share

The results of an investment bank’s debt underwriting unit over a period depends largely on the economic conditions prevalent at that time, as companies around the world tend to shelve plans to raise capital by issuing new debt under a weak economic situation. This is why the largest driver of debt underwriting fees for the banks is the size of the global debt capital market, followed by the actual share of each bank. The share of each of the five U.S. banks in this $5.6 trillion global debt origination figure for 2012 is summarized in the chart below:

Bank Deal Size ($ Bil) Market Share
JPMorgan 438.6 7.9%
Citigroup 322.1 5.8%
Bank of America 293.1 5.3%
Morgan Stanley 278.4 5.0%
Goldman Sachs 235.3 4.2%

As seen above, JPMorgan leads the global debt underwriting business with the diversified banking group holding the top spot for six years over the last decade. The bank has maintained one of the top three positions in the industry for well over ten years now. It must be mentioned here that the German banking giant Deutsche Bank (NYSE:DB) and U.K.-based Barclays (NYSE:BCS) ranked second and third respectively among global debt underwriters for the year 2012.

Performance In Terms Of Fees Earned

When it comes to the fees earned from underwriting debt, Bank of America emerges at the top of the list with the bank adding 16% to its debt underwriting fees for 2011, to earn $3.4 billion in 2012. The total fees for these five banks taken together jumped up 21% in 2012, from $10.4 billion to $12.6 billion. While JPMorgan reported the slowest growth in these revenues (13%), Goldman booked the highest growth (53%).

The following table is based on the quarterly results announced by the banks over the last two years, and summarizes their fees for providing debt underwriting services to their global clients.

Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 FY’11 FY’12
Bank of America 845 939 515 587 774 645 865 1078 2,886 3,362
JPMorgan 971 866 496 553 818 639 805 990 2,886 3,252
Citigroup 504 615 446 389 601 486 590 632 1,954 2,309
Goldman Sachs 486 433 168 196 410 495 466 593 1,283 1,964
Morgan Stanley 338 521 212 288 366 338 431 534 1,359 1,669

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  1. Quarterly Review, Deals Intelligence []
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