Header image

Fee-ding frenzy: Investment banks rake in giant earnings

Corporates and financial sponsors are spending more money than ever before to raise cash. As capital market activity booms, investment banks are raking it in.

Dealogic data show that global investment banking revenues have soared to US$87 billion so far this year (through 20 September), meaning 2020's full-year record of US$92 billion is essentially guaranteed to be shattered by the time we're pouring eggnog. And the rump of these inflows, which accounts for more than US$50 billion of that total, is coming from the Americas, as is historically the case; what is different this year is that a significant portion of that has been driven by the raging bull markets.

Taking stock

Globally, M&A and syndicated loan-driven fees are marginally up YTD from the whole of last year though DCM is still playing catch-up with last year’s total.

Instead, the real action is taking place in the stock market, where fees are up by 75%, to levels never seen before. This indicates that corporates have changed tack, as evidenced by IPOs coming surging back this year. Companies that held tight during the worst of the pandemic have rushed to stock markets to issue equity and capitalise on an ocean of liquidity underwritten by the Fed.

Almost 60% of fees generated in the US so far this year have come from M&A and equity capital market activity, IPOs alone clocking up around US$14 billion in fees, or 27% of all banking revenues.

Shelling out and rolling in

Both equity issuance and M&A have been supercharged by the US SPAC boom of the first quarter, which has been an absolute windfall for investment banks.

SPACs are not necessarily more costly than a garden variety IPO, typically charging between 5% and 7% on the quantum of capital raised and that can even include the cost of an additional PIPE investment. However, when it comes time for the merger, or de-SPAC, a different banker can be used, adding even greater costs. More important is the sheer volume of blank check activity that has been on display.

So long as the music keeps on playing, the fees will keep rolling in. Shareholders in the likes of JPMorgan and Goldman Sachs certainly won't be complaining.