Q3 2013 U.S. Investment Bank Round-Up: Debt Origination

by Trefis Team
Morgan Stanley
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Taking cue from the dip in debt capital markets activity toward the end of the second quarter in the wake of the Fed’s tapering plans, investment banks had predicted a difficult third quarter for the industry back in July. So when Thomson Reuters released its quarterly debt capital markets data for the third quarter this October showing a 11% decline in debt origination volumes for Q3, it came as no real surprise.

Nor did the fact that the debt origination fees for the industry as a whole also shrunk by 11%. We talked about this in detail early last month as a part of our article Uncertainty Over Fed’s Tapering Plans Hits Debt Origination Figures For Q3. Based on quarterly Thomson Reuters’ data, we estimated that the country’s five biggest banks may have bucked the declining trend.

Below we present a head-to-head comparison of the actual debt origination fees pocketed by the banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – in the third quarter, as reported in their earnings announcements.

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

The table below was compiled based on the banks’ earnings announcements and shows the debt origination fees that the five banks earned for each of the last ten quarters.

($ mil) Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
JPMorgan 866 496 553 818 639 805 990 905 956 855
Bank of America 939 515 587 774 645 865 1078 1022 987 810
Citigroup 615 446 389 606 490 594 634 634 558 498
Morgan Stanley 521 212 288 366 338 431 534 411 418 481
Goldman Sachs 433 168 196 410 495 466 593 694 695 467

JPMorgan edged past Bank of America to grab the top spot in fees for Q3 2013 by generating $855 million from debt capital markets after finishing at the second spot for the last five quarters. Despite consistently garnering the largest share of the industry each quarter over the last two years, the diversified banking giant pocketed less fees than Bank of America in eight of the last ten quarters. Quite notably, the decline in JPMorgan’s fee revenue was 11% quarter-on-quarter – in-line with the figure for the industry as a whole.

Bank of America saw its revenues fall 18% sequentially, settling for fees of $810 million after making almost $1 billion for each of the quarters from Q4’12 to Q2’13. The decline can be traced back to a marked decline in the number of deals the bank participated in (312 in Q3 vs. 361 in Q2). Also, as Bank of America’s market share in terms of deal volume remained unchanged between the two quarters, we can infer that the bank played a secondary role in some of the biggest deals that went through over the period – another reason for the decline in fees.

As opposed to our initial estimates of four banks reporting higher debt origination fees, the actual figures show that only one bank achieved this feat – Morgan Stanley. The investment bank’s fees jumped 15% on the back of an improving market share as well as growing average deal size figures.

That said, total debt capital market fees for these five banks taken together declined for the third consecutive period. The total fees for these banks decreased from $3.8 billion in Q4 2012 to $3.1 billion in Q3 2013. With the ensuing interest rate uncertainty, this trend is likely to continue for the fourth quarter of the year.

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