Corporate Financing Analysis - 2017 To End As Bumper Year For IB Fees - 21 AUG 2017


The 2017 y-t-d period has been a fruitful one for the investment banks working in the global corporate financing space. We expect the remainder of H217 to produce a banner year for revenues for lenders from deal underwriting, bookrunner work, and arranger fees. With equity capital market (ecm), debt capital market (dcm), and M&A dealmaking activity all coming back to life in the y-t-d period - albeit with varying performances across different regions - there is plenty more work to go around and this has seen the period of downtime which investment bankers endured across the course of 2016 come to an abrupt end. According to Dealogic data, global investment banking revenues are up by 8% y-o-y to a level of USD48.9bn in the y-t-d period. Within this, nearly all key regions have produced a y-o-y increase in revenues for banks, with the exception of Asia (excluding Japan, where revenues have contracted by 6% to USD6.4bn, Australasia where earnings have fallen 26% to USD0.8bn, and Canada, where they are down by just 1% to USD2.5bn). At the opposite end of the IB fees spectrum, the biggest y-o-y increase in revenues have come from Japan, where earnings are up by as much as 26% to USD2.0bn, and the LatAm region, where a 17% increase in fees has seen banks secure USD1.0bn in revenue so far this year - Dealogic data shows. BMI points to the return to steadiness in the global macroeconomic backdrop - something dealmakers love best - as key to two outcomes: an increase in both corporate financing activity across the globe, and the subsequent fees secured by investment banks supporting them as a result. Indeed, following a period of volatility, global growth is on a relatively stable trajectory once more, with BMI forecasting economic growth to close 2017 at a level of 2.9%, which is what we are forecasting to be the average rate of real gdp growth going forward over the next five years, and which is slightly above the 2.8% average recorded over the previous five-year period.

2017, A Good Payday
Global IB Revenue By Quarter, by USDmn
Source: Dealogic

Q117 A Busy Quarter

A breakdown of the activity so far this year shows that total revenue secured during the first quarter of 2017 tallied USD20,931.57mn, which made it the busiest quarter for investment banking work in the corporate financing arena since Q215 when banks earned USD21,758.88mn from their work on deals. Meanwhile, Q217 saw banks earn a total of USD20,092.90mn and the third-quarter has, so far (according to data correct to August 16), seen banks secure USD7,859.92mn in fees. Within all this, global earnings from dcm activity came out on top in Q117 (USD6,274.71mn), while M&A fees ranked highest in Q217 (USD6,009.39mn). Thus far in Q317, M&A remains slightly ahead at a level of USD2,553.00mn. We expect the ecm and M&A markets to continue to battle it out for top spot in the rankings across the remainder of the third quarter and into Q417 too, while earnings from ecm work on loan arranging look unlikely to compete.

Financials In The Engineroom

As was the case last year, financial institutions have proven to be the biggest earner for investment banks operating in the corporate financing space so far in 2017, and we fully expect the sector to finish at the top of the industry rankings come the year-end. Dealogic data show that financial institutions globally have provided earnings of USD11,158.74mn for the investment banks so far this year, following on from the USD14,284.18mn in fees recorded in the sector across the 2016 full-year period, and which also put it at the top of the industry rankings. In fact, the top three highest fee-paying industry sectors in the rankings have remained the same in 2017 to-date as they were last year, with the only difference being that the Industrials sector has now leapfrogged the Energy & Natural Resources industry into second spot after finishing third to it last year. Dealogic data also show that, thus far for 2017, investment banks have earned USD7,284.83mn from working on industrials deals and USD6,577.51mn from Energy & Natural Resources deals. In 2016, industrial deals paid out USD10,333.80mn to banks, while Energy & Natural Resources deals tallied up USD11,284.18mn in total fees.