I was looking at Q1 2021 league tables for and noticed this. GS by deal volume by size was 28% Europe and 63% Americas but for fees was only 15% Europe and 81% Americas.
JPM volume by size was 41% Europe and 51% Americas while fees were 26% Europe and 65% Americas.
Pretty much every bank on the tables saw a similar trend for 2020. Why is that?
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Because we are back to back world war champs
Because the GDP of California is higher than the GDP of the entire UK.
Bro this can't be real bwahahaa
California would be #5 if it was a country, behind the US, China, Japan, and Germany.
https://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_sovere…;
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It's probably just industry standard. Basically, once certain banks win the mandate (lead-left, co-bookrunner, etc.) then they start having chats with the CFO, CEO, and treasurer on what the underwriting spread will be. Bankers will always try to push the fee as high as they can by saying "Oh this is what industry standard is", but you gotta be careful cuz you won't wanna make the the company look embarrassed afterwards if it looks like they overpaid. If you look on Bloomberg, you can see the fee percentage for every single type of deal (high yield, investment grade, M&A, convertibles, follow-ons) and for all the deals in that category. There's always a range, so some will end up paying 1.9% while the high end might be like 3.2% - this is just an example. The idea is that you want to be in the middle so that you're rewarding the bank for their work and maintain a good relationship with them, but you don't wanna look like you're wasting money cuz them your board and shareholders think you're an idiot.
At the end of the idea, fees are all about how much the client is willing to negotiate. If the client says, "It's gonna be 2% - take it or leave it!" What do you think the bank is gonna do? They'll just take the damn 2%. Look up what the typical underwriting spreads are like in India. Those cheeky buggers negotiate so much that fees can only be like 50bps. Imagine being a bookrunner with 3 other banks and 5 co-managers and only getting 50bps. Also deals are smaller in India as well (smaller economy), so you could be doing a shit ton of work for like $150k fee. That's enough for a few of the analyst bonuses lmao. On the other hand, there's some countries like Japan where the fee percentages are pretty high and it's like actually industry standard. No one negotiates and everything is very transparent.
A few things. In short, a combination of external economies of scale, oligopolies, and the regulatory scrutiny surrounding capital raising and M&A in the US. My thinking is that the increased specialization from external economies of scale often results in higher prices. Plus, there are oligopic effects in the financial services industry where a few brands dominate which also adds upwards pressure on prices. This is all tied to the nature of the business, where clients seek highly educated and experienced people to get advice from (it’s also interesting to note that this phenomenon is driven largely by the regulatory scrutiny management faces when it comes to capital raising and M&A).
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