2007 Record Year for Banking Fees Despite Billions in Write-Downs

By , Money Morning •

By Jennifer Yousfi
Managing Editor

Despite racking up billions of dollars in write-downs from subprime-related assets, Wall Street bankers managed another record year in fee revenue.

According to Bloomberg's annual ranking of the 20 highest-paid investment banks, the top 20 managed to rake in $86.9 billion in advising fees for 2007, a 22% increase over 2006's fees of $71.0 billion. Citigroup Inc. (C) led the pack with Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) and Merrill Lynch & Co. Inc. (MER) rounding out the top five.

Investment banks earn consulting fees by acting as advisors during merger and acquisition activity, as well as advising on the underwriting of newly issued bonds and securities. And the first six months of 2007 set a record for M&A activity with $2.4 trillion in deals.

"It was an extremely active year," Franck Petitgas, Morgan Stanley's co-head of investment banking, told Bloomberg News. "Plentiful and cheap credit allowed quick and large transactions."

Citigroup earned $6.88 billion in fees last year, according to Bloomberg data, a 19% increase from $5.79 billion in fees for 2006. Goldman Sachs earned the second-highest level of fees by bringing in $6.66 billion, an 18% percent in crease from the prior year.

Morgan Stanley came in third with a 22% increase to an estimated $6.36 billion, from $5.22 billion in 2006. In fourth and fifth, respectively, JPMorgan Chase earned $6.23 billion, up 33%, and Merrill Lynch billed $5.55 billion, up 23% from 2006.

Last year was the fourth consecutive year investment banks set a record for advising fees, but it is unlikely 2008 will be the fifth.

"The market is lumbering through a long, painful liquidity situation," Roy Smith, a former Goldman Sachs partner who now teaches finance at New York University, told Bloomberg. "Things are going to be moving very slowly for a while."

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