Global banks have no intention to withdraw from the Asian market
In most parts of the world, the participation of 26 banks in an equity financing transaction sounds like a reckless strategy. But in Asia, this is not the case. Here, it makes sense to get together with more than 20 opponents to participate in the US$8 billion initial public offering (IPO) of China Postal Savings Bank (PSBC).
In a continent with large populations and large differences, market congestion is not the only problem that banks have to deal with. Growth is slowing, costs and risks are increasing, and it is difficult for bankers to negotiate with customers because customers refuse to pay according to current international standards. So why did most of the world's top banks decide to stay in Asia when it is easier for most of the world's top banks to make money locally? Since the beginning of this century, the world's top banks have made large investments in Asia.
Many people will argue that these banks are not determined to stick to Asia. Major banks have recently reduced their Asian operations: Goldman Sachs has reduced the number of investment bankers in Asia (excluding Japan) by 15%, and Barclays, Deutsche Bank, and Royal Bank of Scotland (RBS) have even reduced the number of investment bankers in Asia (excluding Japan). Significantly reduce business.
According to data compiled by consulting firm McLagan, from 2012 to 2015, the eight top foreign banks located in Asia reduced the number of front desk staff by 10% to 15%.
Guy Mozokowski, U.S. banking analyst at Autonomous, said: “Asia is not a topic that companies have talked a lot about these days-but the facts speak louder than words, and we have seen many reports that... Is cutting Asian investment banking business."
However, the report on the reduction does not reflect the full picture, because some banks are again seeking to expand their business in certain industries and countries in the Asia-Pacific region. For the Asia-Pacific, this may not come as a surprise. According to data from Capital IQ, the Asia-Pacific revenue of 12 major European and American banks has increased by about 15% to US$81 billion in the past 10 years.
Barclays is recruiting employees selectively. Credit Suisse and UBS are expanding aggressively, especially in the field of wealth management.
Standard Chartered is carrying out the "upgrade" of talents so as to be able to serve more industries. Even Goldman Sachs, which recently cut its business, will not support the claim that it is retreating. "We have to be flexible, we definitely don't want to retreat," an executive said. "We have not withdrawn any business or regions."
"Banking has a kind of magic that doesn't seem to go away," said Gokul Laroia, Morgan Stanley's co-chief executive in charge of Asia-Pacific operations, of the bank's stamina.
This is not to deny that the market has certain undesirable characteristics. Dealogic data shows that regardless of the size of the transaction, Asian investment banking fees are usually 45% to 60% lower than those of the United States and Europe. The high costs of operating in multiple jurisdictions, coping with multiple languages, judicial systems, and compliance risks have compounded the difficulty of low fees. It is not difficult to see why Asia is regarded as a "profitable desert."
So, what do investment bankers based in Asia see locally? First of all, bankers may not make money in Asia for the Asian strategy to work. "There is a well-known view that you must have an Asian business to be a global investment bank," said Reid Marsh, director of Barclays Asia Pacific Investment Banking. The bank has slashed its Asian operations.
Bankers say this means that the actual economic benefits of their business are better than the published figures. Other bankers pointed out that banks can find a “sweet spot” in charging fees—for example, when a US company acquires Chinese assets, it advises American buyers instead of (stingy) Chinese sellers.
As for increased competition, although Chinese banks dominate the overall Asian investment bank charging list, after excluding transactions involving Chinese banks, the data shows a different look. For example, European and American banks have occupied the top four in the Mergermarket Asia (excluding China) transaction rankings so far this year. The ranking of the list is based on the scale of transactions that banks participate in.
Western banks support the removal of China from the rankings because they do not participate in most of China's domestic business, whether it is mergers and acquisitions (M&A) or financing businesses.
Bankers based in Asia have mixed views on how to succeed in the region. Goldman Sachs said that for investment banking in Asia outside of Japan, the way to succeed is a light and flexible way; JPMorgan said that deep penetration of the region is the key to success; Citi’s selling point is to distribute Asian customers with 100% Bank branches in multiple countries are connected; Morgan Stanley favors a "return-driven targeted product and geographic area strategy."
For European banks, UBS and Credit Suisse stated that their large private banks will give them an upper hand. HSBC and Standard Chartered listed the advantages of large corporate banks deeply rooted in the entire European continent, while Deutsche Bank and Barclays used Each of the business flows derived from other strong markets.
None of the bankers cited a 13% increase in expenses in the first three quarters of this year as evidence of a new round of prosperity. Others pointed out that rising compliance costs could erode profits.
Having said that, these bankers still believe that their hard work is worthwhile. The International Monetary Fund (IMF) predicts that the Asia-Pacific region will account for two-thirds of global growth between 2016 and 2017, even if the annual growth rate slows slightly to 5.3%.
Mark Slaughter, head of corporate and investment banking at Citi Asia Pacific, said: “The real reason we invest in Asia is for the future. Even if Asia cannot maintain its previous growth rate, it is expected to still outperform the rest of the world. You are looking for growth, how can you not make long-term persistent plans in Asia?"
This is why they are willing to endure to get together with 25 other banks to participate in a transaction that is conducive to building business qualifications. A banker said: "No one likes this. (But) if you have a $5 billion deal, at least you can say that you participated in that transaction."