Banks Profit Off Capital Raises, for Now

Banks have enjoyed a surge in revenues related to helping capital-starved financial institutions raise money in the second quarter, but the party may be brief.

Author:: Dan Freed
Publish date:: May 21, 2009 12:08 PM EDT

Banks have enjoyed a surge in revenues related to helping capital-starved financial institutions -- including themselves -- raise money so far in the second quarter, but the party may be brief, according to a report from Sanford Bernstein analyst Brad Hintz.

Citing data from

Dealogic

, Hintz notes equity underwriting volumes are up 86% through Wednesday compared to the first quarter.

Goldman Sachs

(GS) - Get Report

is the top underwriter in the quarter with $516 million in revenues, followed by

JPMorgan Chase

(JPM) - Get Report

Morgan Stanley

(MS) - Get Report

and

Bank of America

(BAC) - Get Report

Citigroup

holds the fifth-place spot with $129 million in revenues, according to the

Dealogic

calculations.

Hintz says margins are "surprisingly solid": 2.6% in the quarter vs. an average of 2.2% in 2008. However, financial companies are accounting for 50% of the equity issuance as the

Federal Reserve

pushes banks to strengthen their capital bases. That is a higher percentage than usual and, as such, appears unsustainable, Hintz argues.

On a further negative note, Hintz observes that revenues get an artificial boost as banks effectively pay themselves for underwriting their own equity offerings.

"Parent company underwritings among broker/dealer subs generate revenue at the subsidiary level, but these revenues are eliminated in the consolidated financial statements," the report states.