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M&A boom helps push investment banking fees

London - Fees earned for investment banking services rose 7% 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 $83.9bn as of December 17, up from $78.4bn in the same period in 2013, according to Thomson Reuters data.

Albeit far off a 2007 peak of $101.8bn, 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% to a three-year high. Banks were paid $26bn for advising on some of the largest mergers in years such as Actavis' $66bn purchase of Allergan.

"The number of deals in excess of $1bn 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 $5.8bn up to December 17.

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

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

ECM fees

While M&A was a primary source of fees, accounting for 31%, income from activities that help companies raise capital - such as initial public offerings (IPOs), allocation of new issues and private placements - climbed 17% over last year to $20.7bn. That was the highest level since 2010, and represented 25% 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 $1.6bn.

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

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

Debt capital market (DCM) fees rose 2% to $22.5bn, accounting for 27% of the investment banking fee pool.

However, fees from syndicated lending sank 8% from last year to $14.8bn, to just 18% of the fees pool.

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

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