Deutsche's outlook for corporate finance in Asia

We talk to Bhupinder Singh, Deutsche Bank’s regional head of corporate finance and structuring, about how banks are structuring their teams and whether he expects more companies to seek finance next year.
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Bhupinder Singh talks corporate finance
<div style="text-align: left;"> Bhupinder Singh talks corporate finance </div>

Bhupinder Singh, Deutsche Bank’s relatively new head of corporate finance and structuring for Asia-Pacific, started his career as a telecoms banker in India, later moving to London to join Deutsche in rates structuring in 2000, which he headed globally from 2006 to 2008. He moved to Singapore in late 2008 to head institutional sales and structuring, Asia. He’s been in the corporate finance role now since April this year. He says his primary focus has been to get to know and understand Deutsche’s clients and their requirements from the bank. He has also been working on implementing the merger of the corporate coverage and investment banking groups into an integrated corporate finance team.

You took an early decision to combine Deutsche’s corporate coverage efforts. What was the rationale?
We’ve combined our corporate coverage, capital markets and investment banking teams within an integrated corporate finance unit. This was driven by the realisation that increasingly, our clients wanted their banking partners to understand their entire businesses and use this knowledge to advise them across the entire spectrum of banking products and services. Our structure spans transaction banking, risk management including facilitating hedging of currency or interest rate risk, debt and equity capital markets and advisory services. Clients have responded positively to being able to access the highest quality services delivered efficiently through one institution.

Well, everyone says they have the “highest quality service”. Increasingly other banks are also combining corporate coverage efforts too. Is this the new industry standard?
A competitive advantage of Deutsche and a small group of competitors is in having local, regional and global scale across the entire gamut of products and services to be able to deliver comprehensively for clients. For mid-tier and niche institutions it is likely to be increasingly difficult to compete.

How will capital markets develop in Asia next year? Will equity make a comeback?
The debt capital markets will continue to be supported by a number of factors — interest rates are expected to remain low for the medium term, the region’s GDP growth remains strong and as bank balance sheets come under pressure borrowers are likely to continue to turn towards the capital markets.

With respect to ECM in Asia it has been relatively harder, with continued global macro volatility and uncertainty around developments in China. Fees are down approximately 23% year-to-date and competition for the fewer mandates remains intense. Global investors have shied away from Asian equity markets in general and new issues in particular, leaving a reduced pool of money chasing the deals that have made it to market. However, investor support for large quality equity stories with good management remains strong. We have seen this with deals such as the AIA $6 billion placing in March in Hong Kong or IHH’s $2.2 billion IPO in Malaysia in July and we expect this to be the case for the rest of the year.

As investors gain more clarity on economic and political developments during the next few months, particularly in China, we are hopeful of seeing increased inflows into equities in the region which could lead to a recovery for equity issuance in the first half of 2013.

What exactly are investors waiting for?
Investors have actually been sitting on high cash reserves and waiting for opportunities to deploy the money efficiently. In markets such as Malaysia and Hong Kong where the deals have been structured well and the quality of companies approaching the market has been high, we have seen massive investor participation in the deals as well as in the aftermarket. So, in reality, investors have not stayed away from the markets as a whole but have been very selective in the deals that they participate in. They are particularly focused on management quality, a key consideration in deals of large size.

Some say the corporate finance business has changed forever in compensation and style. Do you think that is true or do you think this recent industry downturn is cyclical?
I am confident that the corporate finance industry will come back from the current slump stronger, leaner and fitter. Clients will continue to need the services that the industry provides, and I believe that institutions that weather this downturn will do well. With regard to compensation the industry will have to ensure that it works with all the stakeholders — employees, shareholders, clients and society at large — to deliver suitable risk adjusted returns for each constituency.

Everyone is re-shaping their business model. Is Deutsche hiring or firing in corporate finance in Asia? Where are you investing and where are you restructuring in your business?
The industry’s business mix is changing, with the revenues from transaction banking and first generation flow products increasing relative to fee-based business. We will ensure that our mix of resources reflects the strategic direction of the business. This will certainly involve investing in the transaction banking and flow businesses and ensuring that we have the right number and quality of people to continue to grow market share in the fee based businesses.

What’s your view on growth in corporate finance activity in Asia versus the US and Europe during the next five years?
We expect the commercial banking/transaction banking market overall in the region to grow at more than 10% plus... although Deutsche has grown significantly faster in Asia in this area for some years. This compared to low single-digit growth in Europe and the US for this sector generally.

We will be investing in resources to capture the growth differential. In addition, we expect the Asian capital markets to outperform as the global economy recovers. Of course, if the recovery doesn’t occur, the out-performance won’t materialise. Hence any view on relative growth in Asian corporate finance can’t be disassociated with a view on the global economy. At Deutsche we are cautiously optimistic about overall market growth, while remaining confident that we will gain market share.

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