The tough times for investment bankers in Asia seem set to continue thanks to dwindling revenues that are down 27% this year, according to Dealogic.
So far, the fall in revenue has been far bigger than the drop in headcount at most of the big banks, which suggests that further rounds of cuts may be necessary. Most of the pain is in China equity capital markets, which makes up half of core investment banking revenue in the country. Total fees on the mainland, as estimated by Dealogic, are just $1.2 billion year-to-date, down from $1.9 billion during the same period last year.
The type of activity has also affected the size of the fee pool on offer in China. Lucrative initial public offerings are down by more than half, with most of the deal flow now involving companies that are already listed. Indeed, the biggest deal of the year so far was Goldman Sachs’s sale of a $2.5 billion stake in ICBC.
Goldman handled that deal alone, helping it to maintain third spot in the ECM league table for China and, in a record year for M&A fees, it has done more business than any of its rivals. But the fall-off in equities means that it has dropped to ninth in the overall China investment banking revenue table after being in the top spot at this time last year.
Despite the slowdown in China, it still accounts for close to 60% of investment banking revenues in Asia ex-Japan. To be successful in the region overall, an effective China strategy is essential.
Elsewhere in Asia, performance has been mixed. Fee revenue in Southeast Asia is slightly above last year’s record level and its share of the regional fee pool is up to 19% from 13% last year.
The big Malaysian IPOs from Felda Global Ventures and IHH Healthcare have drawn a lot of attention, but the increase in fees has actually come from M&A deals such as DBS’s acquisition of Bank Danamon and the scrap between Thai Beverage and Heineken for the right to own Tiger Beer maker Asia Pacific Breweries.
India, however, is struggling once again with its leadership demons. Core investment banking revenue is down 58% on 2011.
The global economic outlook seems to offer little hope of a turnaround for Asia investment bankers any time soon. The eurozone is headed towards another round of bailouts, the US is divided about whether to jump off the fiscal cliff or not, and growth in China appears to be adjusting to a lower level. With little cause for optimism, the outlook for investment banking revenues in Asia in 2013 remains subdued.