How Much In Equity Underwriting Fees Are The Largest U.S. Investment Banks Likely To Report For Q3?

by Trefis Team
JPMorgan Chase
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The sharp reduction in equity market activity in Europe as well as developing nations over the third quarter of the year boosted the market share of the five largest U.S. banks in the equity underwriting industry for the period. According to data compiled by Thomson Reuters, the U.S. banking giants helped raise almost 42% of the $158 billion in total proceeds from IPOs and FPOs globally – making this their best quarter in terms of combined market share in three years. This strong market share also translated into a healthy wallet share of almost 40% for the quarter.

However, with equity underwriting volumes falling considerably from the high seen over recent quarters, the higher wallet share won’t translate to any top-line gains for the investment banks. In fact, as total equity underwriting fees for the industry are estimated to have fallen from over $5.2 billion in Q2 2018 to just $4 billion in Q3 2018, the total fees for the five largest U.S. banks is expected to fall from $1.95 billion in the previous quarter to below $1.6 billion this time around – a reduction of 20%.

The chart below details the market share of each of the five largest U.S. investment banks.

According to data compiled by Thomson Reuters, deal volumes in EMEA and Latin America shrunk sequentially by 42.5% and 48.5%, respectively. At the same time, the rapidly growing Asia region also witnessed a 15% reduction in activity compared to Q2 2018. The reason for this was primarily the uncertainty in global markets due to the looming fear of a trade war and its impact on the key economies. Although U.S. equity underwriting volumes also fell by 20% in Q3 compared to the previous quarter, the strong presence of the U.S. banking giants in the U.S. and EMEA, and the fragmented nature of the industry outside these regions helped their combined market share climb to almost 42% from around 39% over the previous two quarters.

Goldman figured at the top of the list for the second consecutive quarter, as a strong performance across regions despite industry headwinds helped its market share reach 11.6% – the highest for any bank in a quarter since Q4 2013. The chart below captures the total size of equity capital market deals completed by the five largest U.S. investment banks since Q3 2017. The green-to-red shading for figures along a row show the variations in deal size for a particular bank over this period.

Equity underwriting 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 5 banking giants in a particular quarter.

It should be noted that the largest equity capital market deals (IPOs and FPOs) 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 Should Report The Highest Equity Underwriting Fees Despite Ranking 2nd In Terms Of Market Share

Thomson Reuters estimates the combined equity underwriting fees for these five U.S. investment banks to fall from almost $2 billion in Q2 2018 to $1.59 billion in Q3 2018 – a decline of almost 20%. However, this is much better than the $1.36 billion in combined fees for these banks a year ago. It should be noted that Q3 2017 was a notably weak period for the U.S. banks despite upbeat global equity capital markets, as a bulk of the volume came from Asia as deal volumes in the U.S. remained subpar. The year-on-year improvement in these fees can be attributed to a notable increase in U.S. equity capital deal volumes compared to Q3 2017.

Interestingly, JPMorgan grabbed the largest wallet share (11%) among all investment banks in Q3 even though Goldman Sachs had the largest market share. This can likely be attributed to JPMorgan playing key roles in more equity market deals that closed over the period – generating a much higher-than-average fee per dollar compared to its peers. The diversified banking giant is expected to report a ~9% decrease in equity underwriting fees compared to the figure in the previous quarter – a much smaller decline compared to 33% for Goldman Sachs, 28% of Citigroup and 18% for Morgan Stanley. Bank of America’s fees should largely remain at the same level as the previous quarter.

Details about how changes to Equity Underwriting Fees (and other Investment Banking Fees) affect the share price of these banks can be found in our interactive model for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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