Equity underwriting fees for the five largest U.S. investment banks improved to $6.1 billion for full-year 2017 from the unusually low figure of $4.4 billion in 2016, but remained sub-par given that the average over the last ten years was $6.4 billion. Global equity capital market conditions recovered substantially in 2017 from the slump seen in 2016 thanks to a jump in the volume of IPOs and follow-on offerings in the U.S. and Europe, even as the Asia-Pacific region continued to drive equity market deal volumes. However, the strong equity underwriting activity in the Asian countries (especially China) also meant that the largest U.S. investment banks had to be content with a smaller share of the industry. The wallet share of the five U.S. investment banking giants has shrunk from over 38% in 2013 to just over 30% now.
We capture the trends in equity underwriting fees for each of these investment banks over recent years in detail as a part of our interactive model, while also forecasting how this revenue is likely to change in 2018. We highlight key observations related to their equity underwriting fees below.
Morgan Stanley Edges Ahead Of JPMorgan To Emerge As The Global Equity Underwriting Leader
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Of the $6.1 billion in total equity underwriting fees for the five largest U.S. investment banks, Morgan Stanley was responsible for almost $1.5 billion – representing almost 25% of the total figure. This helped it fare better than JPMorgan, who figured at the top of the list in 2016.
Total equity underwriting fees for the industry are taken from Thomson Reuters’ latest investment banking league tables.
Notably, there have been quite some changes at the top of the equity underwriting league table in terms of wallet share over recent years. While Goldman figured at the #1 spot in the list over 2013-2015, JPMorgan held the top spot in 2016 before being overtaken by Morgan Stanley in 2017.
But The U.S. Banks Are Steadily Losing Ground Globally
The chart below captures the total equity underwriting fees reported by the five largest U.S. investment banks since 2012. The green-to-red shading for figures along a row show the variations in these revenues for a particular bank over this period.
Taking into account the fact that equity capital market activity was unusually high in 2014 and unusually low in 2016, there is a noticeable upward trend in global equity underwriting fees over the last five years. However, there has also been a sharp decline in wallet share for the U.S. banks over this period. We attribute this to the fact that the high-growth developing nations have extremely fragmented capital markets with local players commanding a sizable share. The U.S. investment banks have found limited success in cornering these markets – something that has weighed on their global market share.
That said, a key reason behind Morgan Stanley’s strong showing in 2017 was its commendable performance in Asia and Australia. We expect the bank to emerge at the top of the list again in 2018 as it continues to leverage its stronger presence in key growing economies.
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 Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup
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