Corporate Financing Analysis - Investment Banks Revelling In Corporate Financing Activity - 17 APR 2017

The global investment banking community is busy at work once more and thanks to the boost in corporate financing activity seen across some sectors during the first quarter, we have seen a spike in the revenues that the banks are bringing home. Indeed, a combination of the global economy's acceleration in growth coupled with investors becoming more comfortable with the heightened level of political uncertainty which has become the new 'norm' over the last year or so and increasingly eager to splash pent-up cash reserves which have been left largely untapped for the past 18 months, have provided for a 'purple patch' for the investment banks in Q117. A quick look at the leader board for the key avenues of the corporate financing world shows that for M&A, Wall Street giant Goldman Sachs has the largest share of the market, equivalent to 19.8% in Q117; for equity capital market (ecm) activity, Goldman Sachs again leads the way with a 7.7% market share; for debt capital market activity (dcm), JPMorgan tops the leader boards with a 7% share of activity; while in the market for syndicated lending, and rounding out a solid first-quarter for Wall Street, Bank of America Merrill Lynch leads the way with a 7.2% market share. Going forward, with the increase in investment banking fees serving as a simple, yet somewhat crude lagging indicator of investor sentiment amid the spike in corporate financing activity, we expect the upwards trend in activity to continue over the coming months and through to year-end, meaning that there will be more work and consequently more fees on offer for the investment banking community.

Activity Is On The Increase

The numbers certainly show that the ecm and M&A arenas have increased activity in 2017. While we acknowledge that issuance in, and subsequently fees relating to, the global dcm have failed to ignite in the same way, the bond arena has still seen some notable bright spots which bode well for issuance levels going forward. According to data provider Dealogic, global investment banking revenue tallied USD17.1bn in Q117, up from USD16.4bn a year earlier in Q116. Due to this uptick, we highlight that the US market has enjoyed the so-called 'Trump Bump' since the election of the new president in November 2016. Indeed, US investment banking fees totalled USD8.8bn during the three-month period ending March 31, a 19% increase from Q116. A breakdown of the numbers shows that ecm activity (including IPOs, follow-ons, and equity-linked deals) worth USD1.7bn was recorded during the first quarter, representing the highest share of broader US investment banking revenue (19.6%) since back in Q215 when it represented a 21.6% share. Part of the boost came from the fact that significantly more IPOs priced during the first quarter (26 deals worth a combined USD11.8bn) than during the same period last year (nine deals worth USD1.2bn). Within this, the US played host to the largest tech IPO of the first quarter of 2017, a USD3.9bn float from Silicon Valley unicorn Snap ( see ' Snap IPO A Potential Boon For Tech Sector Floats ' , November 23 2016), which on its own accounted for a fifth of US IPO revenue. The deal was also the largest public listing to be recorded by a US issuer since social networking giant Facebook tapped ecm investors for as much as USD1.20bn back in 2012. This spike in new listings helped the US to record a sharp increase in fees relating to floats of USD477mn in Q117, up from the seven-year low of just USD80mn in Q116. In the US-targeted M&A arena, meanwhile, investment banking fees totalled USD277.2bn during the first quarter, just outpacing the USD272.9bn in revenues earned during the first quarter last year. Within this, we note that the Oil & Gas industry ranked as the top sector for takeovers with a first-quarter record high of USD64.7bn announced, including three of the top five US deals of Q117.

Source: Dealogic

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