Mumbai / Hong Kong: The number of well-paid investment bankers in India is getting harder to justify. Many more will likely see their salaries slashed or lose their jobs.
Excessive pay is under scrutiny at banks around the globe, but nowhere in Asia is the downward pressure on salaries more than in India where deals have almost dried up.
The downturn has widened the already large gap between investment banking costs and fees in India. Competition for deals is fierce and companies are not willing to pay the 3-4% commissions common in Hong Kong or Singapore.
Credit Suisse, Merrill Lynch, Morgan Stanley and other Western investment banks are expected to be the hardest hit, having expanded more rapidly than the scores of domestic banks in Asia’s third largest economy.
“Ultimately there are only so many companies that are looking at M&As (mergers and acquisitions), fund raising and PE (private equity). And to top it up, Indian firms are very tight with their fees,” said Chaitanya Kumar, an ex-Lehman Brothers banker and founder of The School of Investment Banking in Mumbai.
In the first quarter, India investment banking fees came to a mere $107 million (Rs532.86 crore), on pace to end the year 50% lower than in 2008, according to Thomson Reuters and Freeman Co. data. That compares with $1.8 billion in the rest of Asia-Pacific, much of it generated in a few centres such as China and Singapore.
Asia-Pacific brought in $9.9 billion in banking fees last year, while India earned $847 million, the data show. The top i-banks in India brought in, on average, anywhere from $80 million to $120 million in revenues in 2007 alone, bankers and executive search professionals say. Those days are long gone.
“Year to date, I’ve seen one bank with $20 million in revenue, and others who will be happy to get to $20 million by year end,” said a person in the executive search business who works with Wall Street and European banks in India.
Bankers hope the election results will open up the pipeline for initial public offerings (IPOs), bond and merger deals that have been shelved due to the financial crisis; the high salaries are still hard to justify.
Western banks aggressively built up teams in India, with most going to around 25 bankers and some adding at least 40 in barely a year. Now, there is a glut, and fees are sliding. Case in point: Reliance Power’s $2.9 billion IPO last year had 10 banks managing the offering. And a deal for a 3-4% fee in Hong Kong may fetch around 1% in Mumbai, say experts who didn’t want to be named owing to the sensitivity of the issue.