Investment banking: US equities drive boom in Q1 IB revenues
Goldman displaces JPMorgan in Europe; Record underwriting revenues up 60%.
When Goldman Sachs reported its first-quarter earnings on April 16, the firm revealed a 36% rise in net investment banking revenues year on year to $1.57 billion. This result is not only an impressive achievement for the firm but also a reflection of its extraordinary run in US fixed income this year. The figures include underwriting revenues of €1 billion – a 63% jump from the first quarter of 2012 partly thanks to the flows that have taken place in US leveraged finance and commercial mortgage backed securitization.
|Richard Gnodde, co-chief executive of Goldman Sachs International|
Financial institutions continued to lead investment banking revenues in spite of a 17% fall in revenues. The US, Canada and Japan provided the bulk of those financial institutions raising capital. Consumer, real estate and media all saw increases to investment banking revenues of more than 50% year on year. Technology, energy and industrials each declined.
Gnodde partly attributes Goldman’s first-quarter results to the bank’s strength in equity markets. “The equity market had a huge turnaround in the first quarter of this year, coming back in a significant way,” he says. “Our equity underwriting business has taken advantage of these conditions, with volumes almost doubling globally and up almost 80% in Europe.” Goldman ranks number one for completed M&A and worldwide equity and equity-related offerings for the quarter. According to Dealogic, global ECM investment banking revenues rose 3% to $3.8 billion, 22% of total revenues. M&A revenues dropped 14% year on year to $3.6 billion.
“Our global equities business has had a very strong first quarter, especially our US equities team, which has performed particularly well. Barclays is number one in US IPOs for the first quarter,” says John Langley, co-head of global finance and risk solutions at Barclays. “It’s also very encouraging to see that we are now really starting to hit our stride in terms of high profile mandates in Europe and Asia.”
Debt capital markets accounted for 36% of the $17.3 billion of total investment banking revenues at $6.2 billion, but up just 1% year on year. Goldman Sachs nevertheless reported record debt underwriting revenues in the first quarter – up 17% over the quarter to $694 million. “There is definitely a sectoral shift happening,” David Solomon, co-head of global investment banking at Goldman Sachs, tells Euromoney. “Corporate funding was carried out by the European banks, but now they are less likely to be a lender to European corporations. That means European corporates will turn more to capital markets – more similar to the US model. That’s going to be a significant opportunity for us and we are invested in that. For now it’s too early to see that turning into revenues, but over the medium term it will.”
Goldman’s strong performance in Europe saw net investment banking revenues grow from €183 million to €281 million, according to Dealogic. This 53% increase means Goldman displaces JPMorgan as number two in Europe behind Deutsche Bank. Gnodde tells Euromoney that its investment in European DCM has enabled it to effectively challenge the established players. “Corporate lending continues to be very important in Europe, with European banks continuing to run large corporate lending books, which feed into their DCM businesses,” he says. “But we have made a big push in building our DCM presence in Europe on the underwriting side and now rank number six in investment-grade underwriting for European clients.” The firm has particularly focused on building its euro presence on the investment-grade underwriting side in the region.