Hong Kong: Debt financing and lending will become more important across Asia than the equity deals that currently dominate capital markets activity in the region, BofA’s new Asia-Pacific head for corporate and investment banking told Reuters.
Asia’s fixed income business has historically lacked the maturity, depth and volume compared with the US and European markets.
But that is set to change, according to Bank of America’s Matthew Koder, who said on Thursday that debt activity from trade finance to corporate borrowing will rise in prominence across the region.
“It’s going to become more important as the markets in Asia mature generally,” said Koder, in his first interview since arriving at BofA from UBS AG. “Right now, given where interest rates are, pushing out new maturities on your debt side is incredibly important and most top tier corporates don’t need to be recapitalised.”
Such a statement is a bold one for a banker such as Koder, who staked the bulk of his career on Asia’s equity capital markets and is credited with being a major part of UBS’s six-year run as the top equity underwriter across the Asia Pacific.
BofA has worked on $6.9 billion worth of equity capital markets deals so far in 2011, putting the firm in fifth place in Asia Pacific league tables, up from a 10th place ranking in the same period a year earlier, according to Thomson Reuters data.
Koder said that feedback he’s received from clients since he took on the new role tells him that while the bank has a lot to gain from the combined services of Merrill Lynch and Bank of America, they have yet to see it.
“They’d like to see us execute in that platform, but they haven’t really seen us execute yet,” Koder said.
Equity capital market issuance in Asia-Pacific has plunged by more than 30% in 2011 from a year earlier as investors concerned over Europe’s sovereign debt crisis balked at buying stocks. The market should remain difficult in coming months and more offerings could be pulled or delayed, Koder added.
Stock sales tumbled to $172.4 billion so far this year, compared with $259.1 billion in the same period last year, according to Thomson Reuters data.
The decline has been even more severe in the fourth quarter, usually the busiest for issuance, with issuance down to $7.9 billion through early November, from $60.6 billion in the same period of 2010.
“The outlook is very tough ,” said Koder. “ IPOs are going to remain very very difficult, you will see many of the deals which are in the market now probably get postponed. ”
Bank of America is looking to selectively add more people in its Asian corporate and investment banking business, but hiring will be disciplined.
“We are going to look to add more people in the right sectors, in the right countries as appropriate,” Koder said.
BofA, which is undergoing a strategic review, has announced plans to cut about 30,000 jobs globally under the first phase.
Koder said his mandate in Asia is simple. First, to understand all parts of the commercial and investment bank and second, to meet with all major clients to determine how BofA can offer its combined services.
Koder said one area where he’s aimed to address this is having a single person responsible for a single client, as opposed to one or two from the investment bank, and one or two from the corporate bank.
He cited India, where the bank is now instituting a model to streamline coverage of it’s roughly top 10 clients under a single umbrella.
“The person who runs that is responsible for investment banking and corporate banking for those 10 strategic clients, in a very formal way,” he said.