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M&A boom helps push investment banking fees to highest level since 2007

[LONDON] Fees earned for investment banking services rose 7 per cent in 2014, representing a seven-year high, as bankers handled the greatest value of mergers and acquisitions (M&A) since 2007.

Five years after the end of the financial crisis, investment banking fees totalled US$83.9 billion as of Dec 17, up from US$78.4 billion in the same period in 2013, according to Thomson Reuters data.

Albeit far off a 2007 peak of US$101.8 billion, fees have rallied thanks to a deal-making frenzy and a revival in share offerings. Renewed confidence among large corporations spurred multi-billion deals in the healthcare, telecoms, and consumer sectors.

Fees earned from completed M&A advisory rose 15 per cent to a three-year high. Banks were paid US$26 billion for advising on some of the largest mergers in years such as Actavis' US$66 billion purchase of Allergan. "The number of deals in excess of US$1 billion are up; they represent about two thirds of total volumes in EMEA, or 250 transactions," said Severin Brizay, head of M&A in EMEA at UBS. "Almost half of these deals are cross-border transactions and they account for a large majority of fees paid to market. For banks, it is critical to advise on these deals, or they end up in a marginal position," he added.

Investors have been supportive of record M&A activity as they seek higher returns. "We want to be able to get growth, that's why we buy equities," said Nigel Bolton, chief investment officer for the EMEA and Asia regions at BlackRock. "If you want just cash return, you buy fixed income." After a year of regulatory investigations and in some cases multi-billion dollar fines, the M&A rise and the fees boost offer banks a particularly welcome focus.

US bank JPMorgan maintained its top ranking in investment banking fees, raking in US$5.8 billion up to Dec 17.

Goldman Sachs and Bank of America Merrill Lynch ranked second and third, followed by Morgan Stanley and Citi.

US fees were up 3 percent and took the biggest slice, totalling US$41.1 billion, 49 per cent of the total. Britain accounted for 5.4 per cent of global fee activity, followed by China and Canada with around 5 per cent each.

While M&A was a primary source of fees, accounting for 31 per cent, income from activities that help companies raise capital - such as initial public offerings (IPOs), allocation of new issues and private placements - climbed 17 per cent over last year to US$20.7 billion. That was the highest level since 2010, and represented 25 per cent of the overall fee pool.

Goldman Sachs lost its top spot in the global ECM fee rankings to Morgan Stanley, which jumped three places to top the league table with US$1.6 billion.

Global IPO activity increased 50 per cent to reach US$243.5 billion. Including other offerings such as rights issues, so far this year US$871.1 billion has been raised worldwide, a rise of 10 per cent on 2013 and the highest annual total since 2009.

Alibaba's US$25 billion IPO set the record, overtaking Visa's US$19.7 billion US float in 2008.

Debt capital market (DCM) fees rose 2 per cent to US$22.5 billion, accounting for 27 per cent of the investment banking fee pool.

However fees from syndicated lending sank 8 per cent from last year to US$14.8 billion, to just 18 per cent of the fees pool.

Global high yield corporate debt took a knock in the last quarter of the year by dropping 26 per cent to US$71.1 billion over the third quarter of 2014. But a strong first half helped high yield debt to reach US$440.5 billion in 2014 versus US$443.1 billion in 2013.