U.S. Investment Bank Review 2012: Equity Underwriting

by Trefis Team
Morgan Stanley
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Overall, 2012 turned out to be good for investment banks around the world as improving economic conditions allowed companies to pursue capital raising plans they had shelved when the Eurozone showed signs of buckling under its debt burden in the latter half of 2011. And while the debt capital market saw a strong 10% growth last year to swell to $5.6 trillion, the equity capital market also inched up 1.5% to touch $630 billion. [1] But the investment banks did take a pay cut to coax the corporates into exploring the equity market as an option to raise capital – something made amply clear in Thomson Reuters’ quarterly data which shows that equity underwriting fees fell 18% from their levels in 2011. In fact, market total equity underwriting fees for the quarter were the lowest since 2003.

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

Performance By Market Share

The global equity underwriting market is highly competitive with very few players claiming expertise in handling IPOs as well as follow-on offerings across the globe. The market is especially crowded due to a large number of region-specific players (primarily in emerging countries) that dominate in their regions. It is hence a formidable achievement for the five major U.S. investment banks to occupy the top five positions in the list of global equity underwriters. The share of each of these banks in the $630 billion global equity origination figure for 2012 is as follows:

Bank Deal Size ($ Bil) Market Share
Goldman Sachs 57.3 9.1%
Morgan Stanley 52.2 8.3%
Citigroup 51.5 8.2%
JPMorgan 50.1 7.9%
Bank of America 46.1 7.3%

Goldman Sachs retained the top position in the list for 2012. The level of fragmentation in the market can be clearly understood by the fact that Wells Fargo (NYSE:WFC) ranks tenth in the list of global underwriters despite having a market share of just 1.7%.

Performance In Terms Of Fees Earned

As we mentioned above, equity underwriting fees fell in 2012. The total fees for the country’s five biggest banks taken together was down 18% in 2012 – from $5.5 billion to $4.6 billion. Bank of America’s fee revenue fell the most (29%), because of which it shares the honor of being the bank to earn the most from equity underwriting services with JPMorgan.

The following table is based on the quarterly results announced by the banks over the last two years, and summarizes their fees for providing equity 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 448 422 316 268 305 192 279 250 1454 1026
JPMorgan 379 455 178 169 276 250 235 265 1181 1026
Goldman Sachs 426 378 90 191 255 239 189 304 1085 987
Morgan Stanley 285 419 239 189 172 283 199 237 1132 891
Citigroup 204 272 106 90 154 167 142 160 672 623

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  1. Quarterly Review, Deals Intelligence []
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