Friday, March 31, 2023

Global banks generate record fees of $ 125 billion in 2020

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Investment banks around the world generated a record $ 124.5 billion in fees this year as companies rushed to raise cash to survive the pandemic.

The windfall came as lenders were earning unprecedented fees underwriting debt and equity offerings for clients such as aerospace group Boeing, real estate rental site Airbnb and telecommunications group SoftBank, according to the provider of Refinitiv data.

It has been “a very strong year for debt and equity underwriting,” said Jason Goldberg, analyst at Barclays. “You saw a bump this year as companies sought access to financial markets to shore up their balance sheets in the face of pandemic uncertainty.”

This year, companies raised more than $ 5 billion in debt, a level never seen before. While multinationals first established themselves draw lines of credit in March, they quickly turned to the bond market to secure long-term funding.

Lenders have accumulated $ 42.9 billion in technical debt, up 25% from the previous year, the previous record. Wall Street analysts and executives doubt the feat will repeat next year, given that companies are now full of debt and seeks to repair weak balance sheets.

The ‘real story’ was in the stock offerings that the banks completed, as highly regarded public companies, including starting a cloud database Snowflake and American meal delivery company By Dash went public, said David Konrad, analyst at DA Davidson. Companies raised nearly $ 300 billion through flotation around the world in 2020, the highest of any year outside of 2007.

Underwriting fees for the initial public offerings jumped 90% to $ 13 billion, the highest figure since at least 2000, according to data from Refinitiv.

This brought overall share subscription revenue to some $ 32 billion, three-quarters above the transport of $ 18.3 billion of 2019. A number of significant side offerings, such as PNC Financial sale of its stake asset manager BlackRock, further boosted Wall Street commissions.

The surge in tech listings has helped push Goldman Sachs’ business in stocks far beyond that of its competitors. The bank, which drove the DoorDash, Snowflake and Unity software IPOs reaped around 10% of the share subscription fees generated this year. Large IPOs are expected to continue in 2021, according to Michael Wong, analyst at Morningstar.

Line graph of investment banking fees earned, by year (billion dollars) showing that the Wall Street behemoths generated $ 37 billion in investment banking fees

Rising debt and equity offerings helped offset lower M&A advisory fees, which fell 10% to $ 29.6 billion after the transaction slowed down considerably during the first half of 2020. But an increase in takeovers in recent months brings some optimism to investors, especially since companies considering such deals often have to raise billions of dollars to fund deals.

“It needs to be funded,” Goldberg said. “And traditionally this is financed by debt and equity.”

Together, America’s largest banks – JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, and Citigroup – generated just under $ 37 billion in investment banking income, 30% of fees collected this year, their highest share since 2013. European rivals, by contrast, accounted for less than a quarter of investment banking fees in 2020, their lowest share since at least 2000.

The high fees did not translate into share rally for most of the banks this year, which were depressed by the recession. The KBW index of US bank stocks fell 14% in 2020 as lenders set aside reserves for potential losses. Of the five major US banks, only Morgan Stanley has outperformed the US market as a whole. Shares of the downtown Manhattan investment bank have climbed more than 30% this year.


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