Top Five US Banks Generate Record $37 Billion Investment Bank Revenues In 2020: FT

Businesses scrambled to raise money in 2020 as the COVID-19 pandemic forced companies to shore up weak balance sheets and raise capital. Apart from that, 2020 was the second-best year for IPOs after 2007, raising $300 billion globally. 

The top five U.S. investment banks were at the center of all the deal activity, making it a record year in investment banking fees. Together, JPMorgan Chase & Co JPM, Goldman Sachs Group Inc GS, Bank of America Corp BAC, Morgan Stanley MS, and Citigroup Inc C generated more than $37 billion in investment banking fees, the Financial Times reports.

What Happened: The top five banks’ fees accounted for a 30% share in the global investment banking revenues of $125 billion for 2020. It is the highest share for the U.S. banks since 2013, as per FT. On the other hand, European peers accounted for 25% of the global share, their lowest in two decades.

According to Refinitiv, the U.S. lenders earned maximum fees from debt and equity offerings by Boeing Co BA, Airbnb Inc ABNB, and SoftBank Group Corp SFTBY. FT notes that banks also made hefty fees from IPOs like Snowflake Inc (NYSE: SNOW), Unity Software Inc (NYSE: U), and DoorDash Inc (NYSE: DASH).

Barclays analyst Jason Goldberg told FT that, “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.”

Why It Matters: In 2020, companies have raised more than $5 trillion in debt, a mark never hit previously. Companies first moved to draw down the credit line and eventually move to the bond market to seek longer-term funding at near-zero interest rates.

As per FT, underwriters earned $42.9 billion in fees from debt offerings. Analysts believe that this will not repeat next year as most companies are stuffed with debt.

IPO underwriting fees grew 90% year-over-year to $13 billion, the highest in two decades. Many secondary equity offerings led to hefty fees too.

The rise in debt and equity deals was offset by a decline in mergers and acquisitions (M&A) activity in the first half of 2020. In the second half, there was an uptick in M&A activity, which provides optimism to investors.

High bank fees have not translated to a rally in bank stocks as lenders have increased reserves for potential loan losses.