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 (NYSE: JPM), Goldman Sachs Group Inc (NYSE: GS), Bank of America Corp (NYSE: BAC), Morgan Stanley (NYSE: MS), and Citigroup Inc (NYSE: 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 (NYSE: BA), Airbnb Inc (NASDAQ: ABNB), and SoftBank Group Corp (OTC: 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.