Investment banking in Asia no home run for Wall Street
US financial institutions are replacing their EU counterparts positions in Asia, but their reign depends on how long fixed income, currencies and commodities business remains robust
Hong Kong: America, one; Europe, nil.
In Asia, at least, US financial institutions are climbing up the investment banking league tables while their euro-area counterparts sink. But champagne corks shouldn’t be popping on Wall Street just yet. How long their current reign lasts will depend to a large degree on how long fixed income, currencies and commodities business remains robust.
Deutsche Bank AG, weighed down by billions of dollars in fines for money laundering and manipulating interest rates, has slipped from pole position in Asia while JPMorgan Chase & Co., which expanded in FICC and equities, surged from seventh to first place, data from industry researcher Coalition show.
The New York-based bank made $3.3 billion in revenue from investment banking (including trading and equity capital markets, debt capital markets and M&A) last year, about the same as Deutsche Bank made in 2015 when it ranked No. 1.
In second spot in Asia is Citigroup Inc., followed by Morgan Stanley. Goldman Sachs Group Inc. coasted into sixth. It’s laid off about 30 bankers, most of them in Hong Kong and Singapore, as Chinese banks eat into all lenders’ share of the IPO pie and activity in Southeast Asia slows.
Deutsche Bank’s come down shouldn’t be a major surprise considering the company’s litany of problems. Other European financial institutions have scaled back in the region, too. Barclays Plc closed its equities shop in Asia, while post the global financial crisis, Royal Bank of Scotland Group Plc is almost nowhere to be seen. Standard Chartered Plc has largely exited equities globally.
JPMorgan Asia investment banking revenue, FY16
With China clamping down on mainland firms doing deals offshore, 2017 probably won’t be a big year for M&A, or investment banking in general for that matter. But a rebound in markets could spell the return of equities as a significant revenue driver, as was the case in the lead up to June 2015, before stocks in China crashed.
That would be a boon for banks with strong equity franchises in the region, like UBS Group AG. It would also benefit Chinese lenders, which don’t have much of a fixed-income presence offshore but have been playing a bigger part in Hong Kong’s IPO market as they help mainland companies sell shares.
Although exchange volumes in Asia Pacific are down 10.5% year-to-date, there are some notable bright pockets. Hong Kong is up 13.2%, for example, while year-on-year growth in Malaysia, India and Taiwan also reaches well into the double digits, Bloomberg Intelligence data show.
American banks shouldn’t assume their good fortune is bulletproof. Bloomberg