Depth report

　　

Goldman Sachs still wants to be number one. In this regard, this is the usual practice of Goldman Sachs, the bank likes to boast of its top position on the global leaderboard every time it reports profit.

    But the ambition here is about the Asian equity capital market—a market that is increasingly dominated by Chinese operations that the US bank cannot capture. Is Goldman Sachs' ambitions self-righteous overconfidence, or a shrewd bet on the long-term future of Asia, the world's largest equity-raising region?

    The decision to strive for the top spot was made after Goldman Sachs experienced a shocking 2016. According to data from Dealogic, in 2016, the bank did not even enter the top 10 in the Asia-Pacific rankings, while the bank has never fallen out of the top four in the previous 20 years.

    In 2016, Goldman Sachs ranked 15th in the Asia-Pacific region, making it the first time in 6 years that it was unable to claim its top spot in the equity capital market (ECM) global rankings. What makes Goldman Sachs even more angry is that Morgan Stanley won the championship in Asia last year, and it was one of the three non-Chinese banks that squeezed into the top 10. The other two were Deutsche Bank (Deutsche Bank), which ranked fourth. Bank) and UBS (UBS) ranked 7th.

    Put the ranking list in front of bankers who cannot boast that their bank is number one, and be prepared to listen to the series of reasons he puts forward-why these rankings are not important, why any established bank can be at the top of the rankings, why not People care about the rankings and why it really matters which bank makes the money.

    Asia has set a global record for the most underwriters to participate in an initial public offering (IPO)-as many as 26 underwriters have helped China Postal Savings Bank sell 2 billion US dollars in equity-and Asian transaction commissions are still meager, often just very low. A small amount of rupee or renminbi, so the last point above does make sense.

    But the rankings still show the ambitions of a bank and its assessment of the rapidly changing and growing Asian market landscape. In the first half of this year, the total equity capital market transactions in Asia reached 136.7 billion U.S. dollars, making the region surpass the 126.6 billion U.S. dollars in the United States.

    At the same time, the equity business is more important in proportion in the Asian region, because the equity business in the region accounts for an average of 40% of the commission pool, and the proportion is 25% on a global scale.

    Goldman Sachs’ poor performance last year was partly due to its absence from some important transactions, including Japanese deal maker SoftBank’s issuance of $6.6 billion in convertible bonds to help realise its stake in Alibaba.

    The sheer scale of transactions in mainland China poses a longer-term threat to Goldman Sachs and its international competitors; they can only get a small portion of this business. In the first half of this year, the total amount of equity transactions in China accounted for 46% of the regional total. Last year's 15th place led to a discussion among Goldman Sachs Asia executives: Is the investment in striving to be the first in the equity business worth it? Or should it learn to respond flexibly, like many competitors?

    Since the financial crisis, Western banks have been focusing on improving their own strength and complying with balance sheet discipline. This is especially necessary for Asia, where every country needs financial institutions to truly land.

    Large international banks also face fierce domestic competition. In Japan, Nomura and Daiwa Securities are expected to return to the top 10 in any boom year. China is the same, and it is more prominent because of its scale. According to the income ranking of related equity transactions in China, no international bank can make it into the top 10.

    Western bankers often point out that most domestic transactions are not what they want, partly because of the meager profits. They make Hong Kong’s average 2% commission rate relatively generous (New York’s commission rate is 5%-7%) . In addition, they also stated that the reputational risks posed by many domestic businesses are too great.

    Therefore, Goldman Sachs' ambition to be the number one means that either it believes that the Chinese market will be open to foreigners, or it can get more overseas business in Hong Kong.

    To some extent, both ideas may be correct. The bank’s long-term push to allow foreign companies to acquire multiple CNC equity in China seems to indicate that it wants to expand its presence in China. If it also hopes to get a larger share of domestic equity business, it means betting on the quality of transactions will also improve.

    "Getting first is what our bank should do. This is why people want to work here," a Goldman Sachs said, "and we think that given that many Chinese companies want to gain international market exposure, there are enough A profitable business can be done."

    This year Goldman Sachs has taken a counterattack and won back the top position in the region, ahead of China's Citic Securities and China International Capital Corporation (CICC), as well as Morgan Stanley and UBS. . The busiest month of equity trading in Hong Kong, Goldman Sachs' Asia base camp, is also approaching.

    But it will have to compete more fiercely with its Chinese competitors in order to maintain the regional championship.

Box: Last year Western banks failed to regain lost ground in Asian investment banking business

    After a difficult 2015, the large banks on Wall Street and Europe failed to win back Asian business and are still giving up their share of the Asian market to local competitors.

    The latest data from the industry research organization Coalition shows that last year foreign banks only received 19% of the Asian investment banking pie, down from 27% in 2014.

    Most of this rout occurred in 2015, when Western banks' market share fell to 20%. Driven by the large-scale initial public offerings (IPOs) of Chinese-funded enterprises, there was a two-year equity capital market boom in Asia. After that, as transactions declined and competition with regional banks intensified, Western banks' revenues fell sharply in 2015.