Perusing US equity underwriting and sales and trading earnings data for the first quarter recently, I was once again struck by the extent to which the underwriting business is becoming – or in truth has already become, certainly in the case of initial public offerings ( IPOs ) – a rounding error in the grand scheme of equity investment banking, that is, compared with equity sales and trading.

( European numbers tend to follow the same pattern so there are no grand expectations here. )

Beyond self-interest ( personal and institutional ), I do wonder why equity capital markets ECMs)’ acute condition continues to be the source of endless angst and gnashing of teeth among market participants. The landscape for the current quarter isn’t looking good so you have to imagine firms will already be looking at their headcount – or should be – and weighing up whether there is any point in maintaining a presence in a business where market share is already concentrated at the top end.

With the sharp volatility in global equity prices since the April 2 tariff circus came to town, primary capital markets have largely been shut. Extreme market uncertainty and nervousness are far from having evaporated and sentiment is on a knife edge. Prices do try to rally, but market professionals bemoan the fact that financial market disorder is just one crazy Tweet away. As such, you’d imagine that deal making in mergers and acquisitions, or equity capital markets will be a bust for the second quarter.

And a poor quarter or two will make ongoing efforts by ECM participants to turn the clock back to a time when going public was a pinnacle of corporate ambition and the first step to eternal greatness ring increasingly hollow. Ditto their emotional attempts to convince anyone who’ll listen that an ongoing active listings calendar in particular – especially when it comes to home-grown companies in domestic capital markets – is of existential significance for governments looking to boost their economies and save their populations from destitution.

Given that the wall of private debt and equity capital that has been actively funding companies for years doesn’t look like it’s about to disappear any time soon, I do wonder how long those indefatigable proponents of a former status quo will continue to bang the drum.

Funding in that phase before private companies were considered to be mature enough to access public capital markets used to be referred to as the pre-IPO phase. That description is less and less useful ( or rather pointless, in fact ) as companies can, do and will stay private for longer. Private companies and investors can access reasonable price discovery, while the attraction of going public, with all of its onerous public disclosure and other regulatory and stock exchange requirements, just doesn’t have the allure it once did.

Sales, trading-to-underwriting multiple balloons

Global ECM volumes fell 5% to a two-year low of a little over US$142 billion in the first quarter of 2025 year over year and were down 26% quarter on quarter, according to LSEG Deals Intelligence. Asia-Pacific took the biggest regional share of that total. Beneath that aggregate number, global IPO proceeds were US$26 billion. US$26 billion. Globally. And even that insignificant amount was 17% higher year over year.

Underwriting market share is highly concentrated, as I mentioned. The top five underwriters have a 31.8% combined market share. The fifth-ranked firm has a market share of just 4.1%. The aggregate market share of firms ranked 20 to 25 is just 3%. Remember all the hoohah when HSBC opted to exit ECMs in Europe and the US to focus on the Middle East and Asia? You have to wonder what on earth those barely eking out a living if at all think they are gaining by maintaining a presence.

Keeping those league table numbers in mind and looking at the Q1 earnings numbers of the US Big 5 ( Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America and Citigroup ), aggregate equity underwriting revenues were US$1.24 billion. While Goldman’s US$370 million share of that was unchanged from the year-ago number and JP Morgan kept it just about respectable at -9%, Morgan Stanley and Citi both suffered 26% net revenue reversals while Bank of America posted a 34% decline.

Contrast that with equity sales and trading net revenues. These amounted to US$15.83 billion for the US Big 5. That’s pushing towards a 13x multiple of underwriting. Q1 year-on-year performance here showed +48% for JPM, +45% for Morgan Stanley, +27% for GS, +23% for Citi, and+17% for BofA. Goldman, Morgan Stanley and BofA’s number were the firms’ all-time records.

Yes, of course, volatility is the trader’s friend just as uncertainty is the corporate owner and investor’s enemy. So, it doesn’t take much cleverness or creativity to predict that Q2 will see bumper sales and trading revenues or that no one will really want to list a business or buy into one at a time of great uncertainty.

Sustained divergence

While there isn’t always the same degree of divergence between underwriting and broking/trading in normal times, a clear divergence has emerged, and it looks like a sustained one. To track the divergence, I conducted a back-of-the-envelope analysis using the past 10 years of Goldman Sachs and Morgan Stanley’s equity underwriting and equity sales and trading revenues to come up with a reasonable proxy.

In the four full years 2016 to 2019, equity sales and trading net revenues averaged 5.8x equity underwriting net revenues. That halved to 2.88x in the go-go post-pandemic capital markets recovery years of 2020 and 2021. But since then, including the three full years 2022 to 2024 plus the first quarter of 2025, the equity trading-to-underwriting multiple has leaped to an average of 10.85x, peaking at 12.81x in 2022.

Numerically, in the 37 quarters between the first quarter of 2016 and the first quarter of 2025, Goldman Sachs and Morgan Stanley’s aggregate equity underwriting net revenues amounted to US$34.7 billion while aggregate equity sales and trading net revenues for the same period were US$181.1 billion.

Second-quarter numbers will likely show an expansion of the underwriting/trading gap. Time to map out an underwriting exit route?