BofA Overtakes JPMorgan for Investment-Banking FeesHugh Son and Michael J. Moore
Bank of America Corp., the second-biggest U.S. lender, took in more investment-banking fees than larger rival JPMorgan Chase & Co. for the first time since acquiring Merrill Lynch & Co. during the financial crisis.
Fees for debt and equity issuance, as well as advice for activities including mergers, rose 17 percent to $6.41 billion last year at Charlotte, North Carolina-based Bank of America. That edged out New York-based JPMorgan’s $6.33 billion in such revenue for the first time since 2008.
Bank of America’s investment-banking operations, run by Christian Meissner and overseen by Chief Operating Officer Thomas Montag, benefited from a record year in debt underwriting as corporations took advantage of all-time low rates for junk bonds ahead of Federal Reserve plans to withdraw stimulus. The question is whether the firm’s business can maintain its top rank when rates rise, said Charles Peabody, an analyst at Portales Partners LLC in New York.
“It’s not even close to sustainable,” Peabody said in a telephone interview of the jump in fees from debt. “It wouldn’t shock me if fixed-income revenues, issuance and trading, were down 20 percent in 2014. Over the course of the year, rising rates will become a dislocative factor that will cut that pipeline at some point.”
Spokesmen for the firms declined to comment on their rankings. The companies and Wells Fargo & Co., which relies most on retail banking and mortgage lending, led their industry this week in reporting results for the year.
Goldman Sachs Group Inc. said today that investment banking produced $6 billion of revenue last year, a 22 percent increase from 2012, driven by record underwriting of $4.03 billion. Citigroup Inc. posted investment banking revenue that rose 8 percent to $3.98 billion.
Investment-banking services, such as deal advisory and securities underwriting, are dwarfed by trading operations within JPMorgan and Bank of America’s broader investment-bank divisions. Trading produces almost three times as much revenue as investment banking at the companies.
JPMorgan still dominates trading. The firm’s corporate and investment bank, run by Mike Cavanagh, 48, and Daniel Pinto, 51, earned $15.5 billion from fixed-income trading and $4.76 billion from equities last year, up a combined 2 percent from 2012.
At Bank of America’s investment bank, trading revenue fell about 5 percent, with $9.37 billion coming from fixed-income and $4.22 billion from equity trading. Montag, 57, who leads the investment bank, and Meissner, 44, both previously worked at Goldman Sachs.
JPMorgan Chief Executive Officer Jamie Dimon, 57, disagreed with an assertion during an analyst conference call this week that banks will fight over a shrinking pool of fixed-income fees. Companies’ and nations’ need for capital markets will double over the next decade, he said.
“Spreads have been coming down my whole life, and yet we have a healthy business,” Dimon said on the Jan. 14 conference call. “So, we expect that fixed income after some adjustment will be a good business. We think a lot of these trends are cyclical, not secular, and that’s how we’re positioned for it.”
Conditions are still favorable for the junk-bond and syndicated-loan markets that propelled fourth-quarter fees to a record, Bank of America Chief Financial Officer Bruce Thompson said yesterday.
“We feel very good about the pipelines that we have in the investment-banking business,” Thompson, 49, told reporters. “We’ll just see how the quarter evolves, but there’s nothing at this point that would have me send up a note of caution.”
Bond issuance accounted for almost 60 percent of total fees at Bank of America and rose 13 percent in 2013, outpacing JPMorgan’s 8.1 percent gain. Bank of America’s dominance in debt helped it overtake its bigger rival, despite trailing JPMorgan in advisory fees and equity issuance. Thompson said he was optimistic that initial public offerings and rising merger and acquisitions would bolster both areas.
Bank of America’s equity issuance revenue surged 43 percent to $1.47 billion, while advisory fees climbed 6.1 percent to $1.13 billion. JPMorgan’s equities revenue rose 46 percent to $1.5 billion. Advisory revenue fell 12 percent to $1.32 billion.
JPMorgan’s investment-banking operations are run by Jeff Urwin, 57. While his business still tops Bank of America on several key league tables tallying deals, the rankings don’t always correlate to revenue, in part because not every banking mandate is public. JPMorgan ranked first in underwriting U.S. bonds, second in global equity issues, and third in advising on mergers and acquisitions, according to data compiled by Bloomberg. In each category, Bank of America was one or two rungs lower.
Bank of America said yesterday that full-year profit more than doubled to $11.4 billion, the highest since 2007. JPMorgan said a day earlier that net income for 2013 dropped to $17.9 billion, ending a streak of three annual records after the company reached more than $23 billion in settlements to resolve government probes and other litigation.