Change font size:   

 
Bank deleveraging has barely started

Bank deleveraging has barely started

Banks lending money to governments to help fund bank bailouts looks horribly circular

No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

10 reasons to tell your boss you deserve a bonus

weeklyFiXLiquid real estate
Skip Navigation LinksHome :: Back Issues :: Consolidation in a constrained market

September 2000

Consolidation in a constrained market





The ebb and Flow of the Asian debt and equity markets in the past three years has inevitably brought upheavals in investment banking in the region, and it looks as if there are more to come. Avinder Bindra, Citibank's outgoing head of global loan products of Asia, Japan and Australia, foresees continued consolidation among banks, with the number of loan arrangers already diminishing because of mergers involving Chase and Chemical, Deutsche Bank and Citibank. Twenty years ago there were 20 loan arrangers on the scene, now there are eight or 10 globally. There are tentative signs of the Japanese banks coming back into the Asian market and rebuilding assets. "Competition is there for banking lending that would not have been the case a year ago," says David Russell, executive director for debt capital markets at Nomura International in Hong Kong.
       
Bindra: sees Japanese banks trickling back
In 1996-97 most syndicates had 70% or 80% Japanese bank participation. Now most of them have disappeared from the market, although there are signs of them trickling back, says Bindra.
Credit research standards are improving across the region. "There has been a dramatic upgrade in the standards since the currency crisis and people are not looking at the balance sheets of a particular company. Cash is king," says Russell. In terms of personnel, changes are expected as the market comes back and banks start to rebuild teams.
Crucial to the success of investment banks in Asia is diversification, says Bryan Pascoe, head of Asia-Pacific bond syndication at HSBC. "Houses that are purely focused on the US dollar market and rely on US distribution as their key selling point in Asia are in the most concentrated area of competition and are most at risk. Commercial banks with a strong franchise across the region and a well-developed capital market business as well as the US houses that are branching out into the local markets are in the best position to succeed as the competition for deals, both local and international heats up," he says.
Throughout the crisis the banking scene has been more of an international game, with the majority of deals being done by the US houses, plus Warburg and Deutsche Bank from Europe. "Before the crisis it was everyone and their grandmother doing them," says Aamir Rahim, debt capital markets director at Salomon Smith Barney. "Now people have Figured out the difference - they want execution, not relationships," he adds.
Peter Wong, group managing director at Tai Fook Securities, laments the lack of investment in resources by many local brokers. "There is an old perception that they are not profitable or cowboy operations." This still exists among a minority group, but this will soon be addressed and there will be Fierce competition once commissions are deregulated from April 2002, he predicts, pointing to mergers and consolidations that could reduce the number of Hong Kong brokers from 500 to maybe 200 to 250 in coming years. "Some are not prepared to invest for the future - they have no future and they will be eliminated."
The rise in new bond issuance volume does not necessarily spell good news for the investment banks in the region either. Assuming an average spread of 50 basis points, the total new issue fee potential for the market if it returns to pre-crisis levels will be $200 million. A good bank commanding a 10% to 15% market share, could expect maybe a $20 million to $30 million revenue - about the same as the profit from one big equity deal.
"People have overestimated the profitability in this region," says Samuel Poon, Merrill Lynch's head of bonds in Asia. The money, he argues, is in the private deals. "Obviously it is important to do high-profile deals, but the public deals don't make much money, therefore the focus should be on structuring more private transactions," he says, adding: "There are too many bond originators in the region."
On top of that, many commercial banks in the region are now adding capital markets departments. "I don't think they will make money," says Poon. "There may be some blood on the streets before the end of this year."






The environment where anyone can leave a big firm and say I wanna start a hedge fund’ and have people throw money at them is clearly over

Grant Kvalheim, former president of Barclays Capital, is one of many senior bankers mulling life after the credit crunch

  1. US treasury market reaches breaking point

  2. Top 10 financial definitions that are funnier since the credit crunch

  3. Top 10 reasons to tell your boss you deserve a bonus this year

  4. Eksportfinans turns to government for funding

  5. Nomura’s great leap forward: Will Lehman takeover help fulfil its global ambitions?

Latest Issue

December 2008
Ruromoney Jobs Post a job

Home | Mobile site | Contact Us | Debt markets | Equities | Foreign exchange | Banking | Alternative Investments | Regions and Emerging markets | Polls & Awards | Structured credit | Back issues | Euromoney store | Useful links and Related events | Site Map

The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms and Conditions, Privacy Policy before using the site.

All material subject to strictly enforced copyright laws. © 2008 Euromoney Institutional Investor PLC.