It's clear who banks' winners were in the third quarter
Now that JPMorgan, Citi, Goldman and Bank of America have reported their results for the third quarter, one thing is clear: 2020 has been a great year to work in equity capital markets (ECM).
As the chart below shows, year-on-year revenue growth in investment banks' other business areas waxed and waned in the third quarter, but ECM revenues boomed everywhere. And nowhere more so than at Bank of America.
Reporting today, BofA said its global investment bank, which includes ECM, had the second best quarter in its history, driven by its 147% increase in equity underwriting fees. At Goldman Sachs, where ECM revenues were up a nearly comparable 134% year-on-year in Q3, the bank pointed to, "a significant increase in industry-wide initial public offerings" in the three months to October.
The big U.S. banks have benefited from an ECM boom which has gathered pace throughout the year. Refinitiv, the information provider, says global ECM activity was at its highest level since records began during the first nine months of 2020. IPOs were up 26% on 2020; secondary offerings were up 78%, convertibles were up 41%. Wherever you look, ECM has been on fire: U.S. issuance was up 61% in the first nine months vs. 2019; APAC was up 71%; EMEA 56%.
Given the worries around ECM revenues when the pandemic began in March, it's quite a feat. It also means that if you haven't made good money in ECM in 2020, you have a problem with your ECM business.
This clearly isn't an issue at any of the U.S. banks that have reported so far, but it might become an issue when European banks report later in the month. As the chart below from Refinitiv shows, Deutsche Bank's ECM business no longer features among the top 10 globally and UBS has lost the ground it gained five years ago.
The market has clearly grown overall, but U.S. banks also appear to have been seizing market share. If European banks register significantly lower revenue growth, this could bode badly for years when ECM isn't quite so buoyant.
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