Global banks rake in record $125bn in fees in 2020

Investment banks across the world generated a record $124.5 billion in fees this year as companies raced to raise cash to outlast the pandemic.

The windfall came as lenders earned all-time high fees underwriting debt and equity offerings for clients such as aerospace group Boeing, property rental site Airbnb and telecoms group SoftBank, according to data provider Refinitiv.

It was a "very robust year for underwriting both debt and equity", said Jason Goldberg, an analyst at Barclays. "You saw a bump this year as companies looked to access capital markets to shore up their balance sheets in the face of pandemic-related uncertainty."

This year, companies have raised more than $5 trillion in debt, a threshold never before topped. While multinationals first moved to draw down credit lines in March, they quickly shifted to the bond market to lock in longer term funding.

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Lenders earned $42.9 billion underwriting debt, up 25 per cent from a year earlier – the previous high mark. Analysts and executives across Wall Street doubt the feat will be repeated next year, given that corporations are now stuffed with debt and looking to repair weak balance sheets.

The "real story" was in the equity offerings banks completed, as highly valued public companies including cloud database start-up Snowflake and US meal delivery company DoorDash went public, said David Konrad, an analyst at DA Davidson. Companies raised almost $300 billion through flotations globally in 2020, the highest in any year besides 2007.

Fees underwriting initial public offerings surged 90 per cent to $13 billion, the highest figure since at least 2000, Refinitiv data showed.

That buoyed overall equity underwriting revenues to some $32 billion, three-quarters above 2019’s $18.3 billion haul. A number of large secondary offerings, such as PNC Financial’s sale of its stake of asset manager BlackRock, bolstered Wall Street commissions further.

Technology listings

The spurt of technology listings helped lift Goldman Sachs' equity business far past those of its rivals. The bank, which led the DoorDash, Snowflake and Unity Software IPOs, reaped roughly 10 per cent of the equity underwriting fees generated this year. Large IPOs are expected to continue into 2021, according to Michael Wong, an analyst with Morningstar.

The rise in debt and equity offerings helped offset a decline in merger and acquisition advisory fees, which fell 10 per cent to $29.6 billion after deal-making slowed dramatically in the first half of 2020. But an increase in takeovers in recent months is providing some optimism to investors, particularly as companies contemplating those deals often must raise billions of dollars to fund transactions.

“That needs to be financed,” said Mr Goldberg. “And traditionally that is financed with debt and equity.”

Together, the largest US banks – JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup – generated just under $37 billion of investment banking revenues, 30 per cent of the fees earned 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 proportion since at least 2000.

The hefty fees have not translated to a share rally for most banks this year, which have been depressed by the recession. The KBW index of US bank stocks slid 14 per cent in 2020 as lenders set aside reserves for potential losses. Of the big five US banks, only Morgan Stanley outpaced the broader US market. Shares of the midtown Manhattan-based investment bank climbed more than 30 per cent this year. – Financial Times