Equity Issuance Fees Fall Sharply In Q3 Among Major Banks

by Trefis Team
JPMorgan Chase
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Global equity markets witnessed a major slump over Q3, with data compiled by Thomson Reuters as part of its quarterly league tables showing that the total size of equity underwriting deals for the period was $145 billion – a good 27% below the $200 billion figure for Q2 2013. [1] In fact the decline in total equity markets for Q3 comes after sequential growth in each of the last four quarters with the size of the market more than doubling from $98 billion in Q4 2011.

The strong equity market conditions over the first half of the year helped the year-to-date figures as the nine-month period being the best for equity issuance since 2009. Issuers from the U.S. accounted for 35% of the $532 billion that companies across the world raised through IPOs and follow-on offerings over the last three quarters.

With the equity markets going downhill in Q3, the banks obviously had to contend with lower fees from their equity underwriting business. Thomson Reuters’ data estimates a 20% decline in equity underwriting fees for the industry as a whole, with the world’s biggest investment banks pocketing considerably lower fee revenues compared to the previous quarters.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

The table below summarizes the performance of the equity underwriting unit at each of the five largest U.S. investment banks based on data released by Thomson Reuters earlier this week.

Bank Rank Proceeds Mkt. Share # Deals Avg. Deal Size Q3’13 Fees Q2’13 Fees Q1’13 Fees
JPMorgan 1 $16.35 B 11.3% 100 $164M $336 M $440 M $275 M
Goldman Sachs 2 $14.21 B 9.8% 83 $171 M $261 M $361 M $351 M
Bank of America 3 $10.46 B 7.2% 81 $129 M $255 M $286 M $267 M
Morgan Stanley 4 $9.83 B 6.8% 84 $117 M $261 M $355 M $311 M
Citigroup 5 $7.33 B 5.0% 68 $108 M $160 M $237 M $251 M

JPMorgan dethroned Goldman Sachs to emerge as the leading equity underwriter this quarter both in terms of total value as well as number of deals participated in. The diversified banking giant had a role to play in deals worth more than 11% of all global equity market deals that went through in Q3 thanks to its dominance in U.S. as well as European equity offerings over the period. JPMorgan routinely tops the list in terms of number of deals assisted in, with the bank ranking #1 in this regard for 5 of the last 7 quarters.

Despite coming in at second place, Goldman Sachs had a higher average deal size than any of its any of its competitors – indicating that the bank played a role in most of the largest equity underwriting deals over the quarter.

JPMorgan’s role in a bulk of the equity deals for the quarter, including the biggest ones, also helped it amass more fee revenues than the other banks with imputed fees of $336 million. But this figure is still a far-cry from the $440 million in imputed fees for the previous quarter. This steep reduction in fees is common across the banks ranked at the top, with the five largest U.S. banks expected to earn about 25% lower from equity underwriting compared to what they did in Q2. With a 10% decline, Bank of America should take the smallest hit to these fees.

It must be noted here that imputed fees are merely an estimate based on historical data about banks’ fees for a particular role in the equity underwriting process, and the numbers the banks actually report would differ from these figures. But these numbers do give a good indication of what to expect. What remains to be seen is what numbers the banks actually come up once the earnings season gets underway next week.

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  1. Global Equity Capital Markets Q3 2013, Thomson Reuters Deals Intelligence []
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