Investment-banking fees in Europe, growing faster than in Asia and the Americas, are set to reach a seven-year high as sales of debt and stock and a buoyant U.K. economy outweigh stagnant income from trading.
Revenue from arranging mergers, stock and bond sales and loans in Europe, the Middle East and Africa climbed 30 percent to $17.3 billion for the seven months ended in July, compared with the year-earlier period, according to data compiled by New York-based research firm Freeman & Co. this month.
Fees are on pace to rise as much as 35 percent this year and may surpass $30 billion, Freeman estimates, the most since $39.6 billion was collected in 2007, as mergers and acquisitions pick up. Share and bond offerings and M&A have been bright spots for securities firms as fixed income, commodities and currency trading, known as FICC, stays depressed and prompts banks such as Barclays Plc (BARC) and Credit Suisse Group AG (CSGN) to cut staff.
“There’s life after FICC for the diversified investment banks,” said Scott Moeller, a professor of corporate finance at London’s Cass Business School and former banker.
The beneficiaries include JPMorgan Chase & Co. (JPM) and Deutsche Bank AG, the top-ranked arrangers of share sales in Europe, the Middle East and Africa this year, according to data compiled by Bloomberg. Morgan Stanley (MS) and Goldman Sachs Group Inc. are the top-ranked merger advisers in Europe this year.
Fees in the Americas and Asia-Pacific both grew 10 percent, one-third of the European pace, to $31.4 billion and $9.6 billion respectively in the year to July, Freeman’s data show.
Firms have sold more syndicated loans in Europe as investors seek assets with higher yields, according to Freeman, which compiles estimates of fees at securities firms.
“We expect M&A to pick up at a higher pace, which will support the acquisition finance loan market,” said Teck-Tjuan Yap, a managing director at Freeman in New York.
Fees from equity capital markets more than doubled to $4.1 billion in Europe, while income from bonds and syndicated loans increased 21 percent and 28 percent to $5.1 billion and $3.8 billion respectively.
While stiffer capital requirements have hindered trading revenue, they have indirectly generated fees for firms helping banks sell securities to bolster their financial strength.
Italy’s Banca Monte dei Paschi di Siena SpA raised 5 billion euros ($6.6 billion) in a rights offering and Germany’s Deutsche Bank (DBK), the biggest investment bank in Europe, concluded an 8.5 billion-euro share sale in the second quarter.
In the U.K., which is set to be the best-performing Group of Seven economy this year, IPOs have been driven by private-equity firms exiting investments, such as the 1.4 billion-pound ($2.3 billion) offering of AA Plc (AA/) in June.
Fees for arranging mergers have climbed as the value of deals grew 75 percent to $832 billion in the year to date, data compiled by Bloomberg show. U.S. firms seeking foreign listings for tax reasons, known as inversions, have helped drive M&A activity, such as AbbVie Inc.’s July 18 announcement that it’s buying Dublin-based drugmaker Shire Plc (SHP) for $55 billion.
“High cash levels in the corporate sector, the low cost of bond financing and a bubble in stock markets have encouraged mergers,” said Ismail Erturk, a senior lecturer on banking at Manchester Business School. “Quantitative easing in the U.S. and the U.K., and the European Central Bank funding support for the eurozone banks, have inflated asset prices.”
Weak economies, slowing inflation and jitters from the Ukraine crisis may still derail the fee-growth story. Statistics released last week showed Germany’s economy contracted more than economists forecast last quarter, while France stagnated.
“While there are signs that this activity will continue in the months ahead, the recent economic slowdown in Germany, France, Italy and elsewhere in Europe should be a cause for concern,” said Frank Aquila, a partner at corporate law firm Sullivan & Cromwell LLP in New York.