Equity underwriters’ fee haul eclipses that of fixed-income colleagues

Investment banks earned more from underwriting equity issuance than from bonds in the first quarter this year, reversing a decade-long trend as companies rushed to tap rallying stock markets.

Fees from equity underwriting globally increased more than fourfold from last year’s first quarter, with banks collecting an estimated $14.8bn, the highest level since Refinitiv began tracking the data in 2000.

Fees from underwriting bond issues increased as well, albeit only 3 per cent year over year, to $10.2bn. The bond fee haul was also the highest ever in a first quarter.

The rollicking start to the year for equity issuance included the busiest quarter for traditional initial public offerings since records began in 1980 and a boom in listings of special purpose acquisition companies, which raise money and then hunt for an operating business to buy.

“Now is such an incredible time to sell,” said Marc Cooper, chief executive of investment bank PJ Solomon. “More people are putting companies on the marketplace who either couldn’t before, or who are just choosing to do it early because the market is so robust.”

Proceeds from traditional IPOs, follow-ons, Spacs and convertible bonds — a debt-to-equity instrument — topped $441bn globally in the first quarter, the highest level since Refinitiv started tracking the data in 1996. High-yield and investment-grade bond issuances came close to $1.4tn in the same time period.

Investment banks have also been enjoying a boom in mergers and acquisitions activity, swelling their fees further. In total, banks globally have earned an estimated $37.3bn in fees in the first three months on 2021, up 37 per cent from the first quarter of 2020, also the highest level on record.

One wrinkle in the data: Refinitiv counts the full fee for underwriting a Spac IPO in the quarter of its launch, even though investment banks do not collect some of their pay until the shell company merges with an acquisition target. That means some of the fees booked in the first quarter will not be earned until later.

The record levels have left some wondering how sustainable the trend is.

“Our judgment is, the second quarter will be robust and very active, but probably won’t match up to Q1,” said Achintya Mangla, global co-head of equity capital markets at JPMorgan. He added that Spac launches could slow down more sharply than traditional IPOs.

A market downturn is also a risk, bankers and advisers said, although the US benchmark S&P 500 began the second quarter in fine fettle, passing 4,000 for the first time on Thursday.

“If the markets get a road bump, I think all these deals will freeze in their tracks,” said Craig Marcus, co-head of law firm Ropes & Gray’s capital markets group.

“But as long as the market says strong, I think there’s more than enough of a pipeline.”