It is only to be expected that a market whose direction is hard to predict should be generating schizophrenic signals from the banks. Stories emerged in February showing very different attitudes towards payment.
In the space of a week, Credit Suisse was reported to have increased bonuses by 15% to some staff, UBS to be reducing them by the same amount and Deutsche to be preparing to resume paying them at all.
To take each in turn:. Credit Suisse, which these days breaks out Asia as a separate unit in its quarterly results, was reported to have raised some senior investment bankers’ pay in Asia by up to 15% in 2016 – a story that it says it did not originate, but which it has not denied.
Analysts and associates in advisory and underwriting averaged 20% growth. That is credible: fourth-quarter revenue in Asia-Pacific advisory climbed by 44% year on year, although it fell in regional investment banking overall because of a drop in fixed income sales and trading. For the whole year, Asia-Pacific underwriting and advisory was up 38%, suggesting that at least part of Tidjane Thiam’s plan to generate more group revenue in Asia is working.
Deutsche, which has paid little-to-no bonus over 2016, is to resume paying it. Werner Steinmuller confirmed to Euromoney that this will apply in Asia, including Australia.
UBS’s Asia-Pacific investment banking bonus pool fell by about 15% in 2016, according to Bloomberg. It is easy to see why, after the division’s profits dropped 66%.
It would be reading too much into things to say this represents a changing of the guard, although Credit Suisse has had an unarguably good 18 months in investment banking in the region, while UBS’s have been disappointing.
Deutsche increasing bonuses and UBS decreasing them has to be seen in the context of Deutsche not paying anything of consequence last year and UBS having had one of the highest bonus pools in the region in 2015.
But the divergent pattern also reflects a market opportunity in Asia that is increasingly difficult to read. DCM has shot out of the blocks, high yield is back and India has become a source of IPOs (even if they pay hardly any fees); but advisory is stymied by China’s changing attitude to outbound capital flows, undermining the single most important area of business last year, outbound China M&A.
It is hard to form a view on whether this is going to be a good, bad or indifferent year for Asia investment banking.