Piper Jaffray, a mid-size US investment bank, said yesterday that it is pulling out of Hong Kong due to continued losses in its capital markets business in the city. It is planning to exit by the end of September, either by shutting down the office or, if it can find a buyer, selling the operation.
The bank’s Hong Kong capital markets business lost $3.9 million during the second quarter, after a $2.9 million loss in the first quarter and an $11 million loss last year. Net revenues dropped to just $1.9 million, or considerably less than the $3.2 million it paid in compensation, according to its earnings statement.
“Results in Asia continued to weigh on our financial performance,” said Andrew Duff, Piper Jaffray’s chairman and chief executive officer, in the statement. “We believe that the Asia market provides a long-term growth opportunity; however, the current loss run-rate is not acceptable nor can we fund the required investment to build out our platform.
“For a number of months we have devoted considerable resources to evaluating and pursuing alternatives for the Asia business. We are evaluating these alternatives based on the best interests of our shareholders, clients and employees and will exit the market by the end of September.”
Piper Jaffray opened in Hong Kong in 2007 through its acquisition of Goldbond Capital. Revenues peaked during a burst in market activity in 2010, but the continued weakness of Asia’s equity markets since then has put a strain on its overall business. The problems in Europe have only made matters worse.
The slowdown has affected most of the foreign banks in Hong Kong. Bulge-bracket firms have laid off staff in equities and smaller players are under pressure to close down as the losses weigh on operations back home, where many are under pressure to shore up capital and cut costs.
Some foreign banks have managed to find buyers for their struggling Asian businesses. Last week, France's Credit Agricole sold CLSA, its Asian brokerage business, to Citic Securities for around $1.25 billion, while in April, CIMB agreed to buy most of RBS’s cash equities, equity capital markets and corporate finance businesses in Asia.
Overall, Piper Jaffray’s investment banking revenue for the second quarter dropped 25% to $51 million compared to last year, weighed down by the results in Asia, while the drop in mergers and acquisitions in Europe led a 14% drop in revenue from advisory services.
The bank’s shares, which are listed in New York, rose almost 6% yesterday morning as investors welcomed the cost savings. However, at $20.70 the stock is still far below the $31 it was trading at this time last year.
