"Banks expect fee bonanza from stock sales spree
By Tenzin Pema
NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) are emerging as the top beneficiaries of the biggest boom in U.S. secondary offering activity, stoked by banks' rush to sell stock after government "stress tests."
May saw the biggest ever U.S. follow-on activity, based on proceeds, with $39.2 billion so far this month across all industries, based on Thomson Reuters data. The second largest was in October last year with $26.1 billion.
Banks collected $1 billion of fees from underwriting U.S. equity issues in the first two weeks of May alone, compared with $1.2 billion for the entire first four months of the year, according to the data.
"Obviously this is going to be one of the best quarters in history because of the amount of capital raises in the past 10 to 12 days," said Richard Bove, an analyst at Rochdale Securities.
JPMorgan came in as the top bookrunner to U.S. equity and equity-related offerings for the year-to-date period with $326.8 million in fees from 74 issues, the data showed, and stayed on top even as the pace of offerings sped up in the first two weeks of May.
Morgan Stanley followed with $291.7 million from 55 equity issuances, Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) with $261.4 million from 66 issues and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) with $220.5 million with 39 issues.
Proceeds from U.S. secondary share sales have totaled $67.84 billion so far this year, compared with $47.47 billion for the same period a year earlier.
"If this is the biggest month in the history of the industry in capital raises, then the profits that Morgan (Stanley), Goldman, JPMorgan, Citigroup, Bank of America and to a lesser extent Wells Fargo makes from this business is simply going to be mind-blowing," Bove said.
U.S. banks are driving the issuance, with many being forced by the U.S. government to raise equity capital following stress tests by regulators to see how they would cope with a worsening economy, including a further surge in the jobless rate and further declines in home prices.
Of the 19 U.S. banks to undergo stress tests, 10 were told to raise a combined $74.6 billion.
Treasury Secretary Timothy Geithner told the Senate Banking Committee the 19 banks have raised or set plans to raise more than $56 billion, including $34 billion of equity capital.
Bank of America topped them all, issuing $13.5 billion through a share sale in a series of transactions, culminating in an offering that raised more than $8 billion on Tuesday.
JPMorgan benefited from acting as joint bookrunner with Wachovia Securities for Wells Fargo's offering. JPMorgan is arranging the offerings for Regions Financial Corp (RF.N: Quote, Profile, Research, Stock Buzz) and BB&T Corp (BBT.N: Quote, Profile, Research, Stock Buzz), among others.
Goldman and Morgan Stanley have also been major beneficiaries of the surge, having underwritten or agreed to underwrite $1 billion or larger stock offerings by financial companies such as State Street Corp (STT.N: Quote, Profile, Research, Stock Buzz), U.S. Bancorp (USB.N: Quote, Profile, Research, Stock Buzz) and Bank of New York Mellon Corp (BK.N: Quote, Profile, Research, Stock Buzz) and nonfinancial companies like automaker Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz).
Equity underwriting fees have traditionally been one of the most lucrative activities for investment banks, typically earning them 2 percent of the amount raised.
Banks' recent success in raising capital should open the way for more companies to return to the capital markets, experts said.
Last week, follow-on deals exceeded $15 billion for a second week in a row, far above the $1 billion to $2.5 billion range typical earlier in the year.
If sustained, the issuance boom could cause analysts to raise earnings forecasts for financial companies with sizable investment banking operations, Bove said.
He said the average analyst forecast for Goldman Sachs' and Morgan Stanley's second-quarter earnings could rise 50 percent from current expectations, helped by the secondaries boom.
"The money is available to do deals, and so deals will be done beyond what's happening in banking," Bove said.
He expects to see deals in the insurance and technology industries, and said private equity funds will likely return to markets.
(Editing by Christian Wiessner.)"