Demand For Securitized Products Helps Citi Reach #1 Spot In Debt Capital Markets

U.S. debt capital markets continued to benefit from an elevated level of activity owing to the Fed’s rate hike plan over Q1 2018. And the five largest U.S. banks did their best to capture more than 26% of the total debt origination fees that were up for grabs globally. While there was an evident reduction in the origination of high-yield corporate debt for the quarter (which fell by almost 32% year-on-year according to Thomson Reuters), investors looking for higher yields drove origination of securitized products notably higher for the period. As Citigroup dominates the category of asset-backed securities (ABS) – with an exceptionally strong hold on collateralized debt obligations (CDOs) – the geographically diversified banking giant helped originate more debt than any other investment bank globally.

Citigroup Won The Latest Round In The Fiercely Competitive Debt Origination Industry

Citigroup edged ahead of JPMorgan by a small margin this time around, although the latter fared better in the previous quarter. Notably, these two banking giants have largely alternated at the top spot in the debt origination league table over recent years, with Citigroup ranking at the top in five of the last ten quarters, and JPMorgan faring better in the remaining five quarters. However, Citigroup has had more success than most of its peers in high-growth developing nations like China and India thanks to its larger retail presence – something that should allow the bank to continue to dominate the industry in the future.

You can see how changes to Citigroup’s share of the debt origination industry can impact our price estimate for the bank’s shares by modifying the chart below.

The chart below captures the total size of debt capital market deals completed by the five largest U.S. investment banks since Q1 2017. The green-to-red shading for figures along a row show the variations in deal size for a particular bank over this period.

Debt origination volumes for individual banks were taken from Thomson Reuters’ investment banking league tables for the last five quarters. The table below captures the respective market shares for each of these banks over this period. The green-to-yellow shading for figures in a quarter should help compare the relative standings of these banking giants in a particular quarter.

It should be noted that the largest debt origination deals employ more than one investment bank, and the market share figures here factor in the proportion of the total proceeds generated by a particular bank.

JPMorgan Claimed The Largest Wallet Share For Q1

Thomson Reuters estimates the combined debt origination fees for these five U.S. investment banks to increase sequentially from $6.4 billion in Q4 2017 to $6.7 billion in Q1 2018. However, it should be noted that the fourth quarter is seasonally the slowest period for the industry, while the first quarter is the best period. The fee estimate for Q1 2018 is actually 5% lower than the figure of $7.05 billion seen a year ago – something that can be attributed to the sharply lower volume of high-yield corporate debt in the U.S.

This, in turn, is expected to weigh considerably on the debt origination fees of each of these banks this time around. Although JPMorgan should report the highest fee revenues for the period, the bank’s fees are likely to be about 23% lower than the figure a year ago. Morgan Stanley is expected to witness the largest decline in debt origination fees year-on-year (of 30%), while Goldman Sachs’ fee figure should be affected the least (8% decline). Bank of America and Citigroup are estimated to report fees that are ~15% lower compared to the figure for Q1 2018.

Details about how changes to Debt Origination Fees (and other Investment Banking Fees) affect the share price of these banks can be found in our interactive model for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

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