Q2 2013 U.S. Investment Bank Round-Up: Equity Underwriting

by Trefis Team
Morgan Stanley
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There has been a significant recovery in global equity issuance in recent quarters – more than doubling from the dismal $98 billion in Q4 2011 to just shy of $200 billion for Q2 2013. The growth stems from improving sentiment across the globe with companies venturing into the markets to raise fresh capital through IPOs and follow-on offerings – something they had been averse to since mid-2011, when economic conditions in Europe worsened.

Naturally, the improvement in the industry translates into better fee revenues for investment banks. Early last month, we attempted to estimate the quarter-on-quarter changes in equity underwriting fees for the country’s five biggest investment banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – based on equity market data compiled by Thomson Reuters. In that article – titled How Major Banks Stacked Up For Equity Issuance in Q2 – we concluded that each of these banks likely benefited from higher equity underwriting fees in Q2. And with the banks detailing their performance for the quarter over the past few weeks, below we take a look at how they fared in terms of the actual equity underwriting fees generated for the period.

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

The quarterly data from Thomson Reuters estimated a 17% increase in equity underwriting fees for the industry in Q2 compared to Q1 2013. The country’s five biggest investment banks did slightly better than this, with their total equity underwriting fees increasing by 19% for the period – from $1.49 billion in Q1 2013 to $1.77 billion in Q2 2013.

The table below was compiled based on the banks’ earnings announcements, and shows how much in equity underwriting fees each of the five banks earned for each of the last ten quarters.

($ mil) Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013
JPMorgan 379 455 178 169 276 250 235 265 273 457
Goldman Sachs 426 378 90 191 255 239 189 304 390 371
Bank of America 448 422 316 268 305 192 279 250 323 356
Morgan Stanley 285 419 239 189 172 283 199 237 283 327
Citigroup 204 272 106 90 155 168 143 163 225 266

Q2 2013 was JPMorgan’s quarter in the equity capital markets with the diversified banking group playing a role in 128 deals – more than any other bank – and pocketing a handsome $457 million in fees in the process. While the high deal count is a testament to the bank’s strength in the market, a significant portion of its fees came from its role as the sole underwriter for Thermo Fisher’s $2.5 billion follow-up offering this June.

Goldman garnered the largest market share in the industry for Q2 in terms of deal size, helping underwrite deals worth one-tenth of the total global issuance volume, despite playing a role in just 101 deals – less than any of the other banks listed here. As a result, its average deal size was significantly larger for Q2 than any of its competitors. While global debt capital markets showed signs of trouble towards the end of Q2, we expect companies to be more open to raising capital from the equity market. This should help equity issuance volume maintain its brisk growth over coming quarters – something we capture in the chart below.

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