Advisory Fees Likely To Take A Hit As Global M&A Activity Falls In Q1 2014

Apr 11 2014, 8:18am CDT | by

According to the global M&A activity data for the first quarter of the year released by Thomson Reuters last week, investment banks helped companies close deals worth $539.5 billion for the period – 8% lower than the $586 billion figure for the previous quarter. And while the total size of deals completed in the quarter was 10% higher than that for the same period last year, Q1 2014 was the slowest in terms of number of deals announced worldwide for the first quarter of a year since 2004, with 8,237 deals in all. In terms of completed deals, the period was the slowest quarter in at least four years, as less than 5,900 deals closed over the first three months.

The fall in M&A activity will no doubt have an impact on the fee revenues the world’s largest investment banks generate. Thomson Reuters’ data indicates a 24% reduction in fees for the industry as a whole in Q1 2014 compared to Q4 2013. While the performance of individual banks (especially the biggest banks) may vary considerably compared to the industry trend, this fact should help set expectations for the banks’ advisory desks as the earnings season kicks off on Friday.

See the full Trefis analysis for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

As mentioned above, the total size of M&A deals completed in the first quarter of the year was $540 billion. U.S. banks garnered a strong share of this figure, with Goldman Sachs, Bank of America, JPMorgan and Morgan Stanley occupying the top four spots in the rankings. U.K.-based Barclays took the 5th spot.

The table below summarizes the Q1 performance of the M&A unit at each of the five U.S. banking giants, according to Thomson Reuters’ data for Q4 2013 and Q1 2014. It should be noted that most deals employ more than one bank, which is why the sum of market shares for just these 5 banks is well above 100%.

Bank Deal Size Mkt. Share # Deals Avg. Deal Size Q1’14 Fees Q4’13 Fees
Goldman Sachs $226.6 B 42.0% 94 $2.41 B $560 M $531 M
JPMorgan $212.2 B 39.3% 61 $3.48 B $363 M $427 M
Bank of America $206.1 B 38.2% 50 $4.12 B $316 M $301 M
Morgan Stanley $200.5 B 37.2% 61 $3.29 B $299 M $313 M
Citigroup $43.3 B 8.0% 39 $1.11 B $166 M $253 M

Goldman Sachs closed more deals than any of its competitors in the industry for the third consecutive quarter in Q1, with the investment bank playing a role in deals worth more than 40% of the total M&A deals that were completed. The bank also continued to lead the list in terms of total number of deals – being a part of 94 deals that closed in the quarter. This is a good 50% higher than the 61 deals competitors JPMorgan and Morgan Stanley assisted in over the period. Interestingly, Goldman Sachs had a considerably lower average deal size than the banks holding the next three ranks here. This indicates that the bank was not a part of some of the biggest deals that closed this quarter. On the other hand, Bank of America likely played a role in many of the largest deals, thanks to which it had the highest average deal size here of $4.1 billion.

Citigroup had a surprisingly weak quarter – sinking from the 5th position in global rankings throughout the year 2013 to the 11th spot for Q1. The bank had a role in just over $40 billion worth of deals over the period – a far-cry from the $200 billion in deals each of its other large U.S. competitors participated in.

Coming to the most important aspect for these banks, Goldman should have a strong quarter in terms of advisory revenues, with imputed fees north of $560 million. It should be noted that imputed fees are merely an estimate based on historical data about fees demanded by the banks for a particular role in the complex M&A advisory process. Although the banks report numbers which often differ quite a bit from these figures, imputed fees are generally a good indicator of what to expect.

As is evident from the comparison of fees for Q4 2013 and Q1 2014, Goldman Sachs and Bank of America are expected to break the trend of an overall decline in advisory revenues quarter-on-quarter. Both of these banks could report a 5% improvement in advisory fees compared to the previous quarter. On the other hand, Morgan Stanley’s revenues from M&A advisory are estimated to be 5% lower, while JPMorgan and Citigroup are likely to fare significantly worse.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.


<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.


blog comments powered by Disqus

Latest stories

Amazon Black Friday 2015 Sale is Live: The Best Deals
Amazon Black Friday 2015 Sale is Live: The Best Deals
The Black Friday 2015 sale on Amazon is an 8 Day event.
Amazon Black Friday 2015 Deals Unveiled
Amazon Black Friday 2015 Deals Unveiled
The Black Friday 2015 Deals offered in the Amazon Black Friday 2015 Sale are here.
Sam&#039;s Club Holiday Savings Celebration Sale 2015 Kicked Off Online
Sam's Club Holiday Savings Celebration Sale 2015 Kicked Off Online
The Sam's Club sale on Saturday November 14 is the first big Black Friday 2015 sale of the year and the Black Friday deals are online now ahead of the stores opening.
Find Hot Black Friday 2015 Deals
Find Hot Black Friday 2015 Deals
The Black Friday 2015 Ads are rolling advertising the Black Friday 2015 deals.