Investment banking: Ambitious locals up the ante in Asia
The traditional players continued to fight it out for investment banking spoils in the Asia-Pacific region in 2014, but Chinese banks are on the rise and regionals are pushing for a bigger share of the pie.
The current trend in banking to understand your strengths and focus strategy on those areas seems highly suited to the Asia-Pacific region. The heavily-localized markets and strong levels of competition can prove a tough environment for those without a strong conviction in their expertise and good knowledge of a target country.
The days of simply piling into every business area and geography on a relentless quest for expansion are disappearing. Streamlining your investment banking business and pointing it in the direction of opportunities with a laser-like precision is the order of the day.
For some banks, this means pulling out of unprofitable areas, while for others it means a drop-off in competition and a clearer playing field. Then there are those that still see value in competing for every trophy. And with all of these strategies in force, the competitive landscape in the Asia-Pacific region for 2014 always promised to throw up some surprises.
Bankers rarely praise the opposition in public, but privately they acknowledge the impressive year that Goldman Sachs has had in 2014.
According to Dealogic, the US investment bank finished top of the Asia-Pacific ex-Japan IB revenue rankings table for 2014 (all figures in this article valid up to December 8) with net revenue of $541 million. Goldman moved up from a fourth place ranking in 2013.
“Asia-Pacific is an extremely competitive market where we always face off against a range of very diverse contenders,” says Matthew Westerman, head of investment banking for Asia-Pacific ex-Japan at Goldman Sachs.
“This year we have done a good job of identifying themes that are important for our clients and then creating and executing innovative ideas to capture the opportunities they present. We feel the franchise is in a strong position going into 2015.”
UBS took second spot in the Asia-Pacific ex-Japan IB revenue rankings table for 2014, down from the top spot last year. Deutsche Bank came third, with Morgan Stanley fourth and Credit Suisse fifth. Citi jumped up to sixth with $391 million in net revenue, from eighth the previous year.
“Competition is always there and it’s been another competitive year – from a combination of local banks and international banks, and the Europeans are starting to re-engage with Asia,” says Stephen Bird, chief executive, Citi, Asia-Pacific. “The large domestic banks are increasingly competitive and increasingly able within one market to compete very effectively.”
Bird was pleased with his bank’s performance in Asia in 2014 and is optimistic for further growth in 2015 in several key business areas.
“All the elements of the Citi model in Asia clicked in 2014,” he says. “On the banking side it was a very strong year that’s reflected in the league tables but more importantly we increased wallet share with key clients across areas such as M&A and capital markets.”
Bird adds: “When I look across our core institutional platform, Citi’s global banking capability is increasingly helping us to differentiate versus our peers. We are winning market share. Despite slowing global growth Asia’s corporate champions have continued to perform strongly and are using our network across Asia and the world in areas such as cash management and trade finance to capital raising and strategic advisory work.”
| Asia-Pacific is an extremely competitive market where we always face off against a range of very diverse contenders
There was much chopping and changing in the M&A revenue rankings in 2014 for Asia-Pacific ex-Japan. Goldman ran away with the top spot, clocking up net revenue of $173 million. UBS grabbed second place with $116 million and Credit Suisse came third with $107 million.
“With the bulge brackets in 2014, the spread of performance in the tables is huge, and much bigger than it normally is,” says one senior M&A banker in Asia-Pacific. “At the bottom end of the table, there are people down there that have virtually done no deals. Some big names are down there having done virtually nothing. On the north of $2 billion deals, it's the big guys that are doing them.”
Goldman also topped the ECM revenue rankings for Asia-Pacific ex Japan for 2014, notching up $281 million in net revenue, climbing to first place after finishing second in 2013. UBS, which topped the table last year, was pushed into second position in 2014 with $243 million in net revenue.
HSBC has also been aiming to boost its ECM business in the Asia-Pacific region and has made some key hires with this purpose.
“The past year has been strong for us,” says Alexis Adamczyk, co-head of ECM, Asia-Pacific at HSBC. “We continued to build our stronghold in Hong Kong and China. What we would like to achieve is to extend that franchise to other geographies in the region. We have hired a few key people and are already starting to see a stronger pipeline.
“Other highlights for us this year are that we continue to dominate the rights issues league tables and that we have built our convertible bond business into a top-three player in the region.”
One trend that may be causing the larger bulge bracket western banks to look over their shoulders is the progress of China’s banks.
“The Chinese banks are appearing on more transactions,” says one M&A banker. “They are demonstrating that they have good leverage with a number of the larger Chinese clients and therefore find themselves able to angle themselves into deals where there is an important China angle to it.
“So usually if there’s a strong Chinese domestic part of a deal, one of the Chinese banks would have a good shot at getting in a broad advisory role as a result.”
But Chinese banks have some way to go yet to compete with the large western banks, particularly on deals that do not have a Chinese angle.
“On deals that do not involve Chinese parties on either side, I've never seen a Chinese bank on one of those,” adds the banker. “And on deals which don’t have a domestic angle and are complex cross-border international, it’s unusual to see them.
“On the sort of deals that we would want to be involved in – the larger end, more complex deals – even when they do have domestic angles, it’s not often that we see them on their own, opposite a bulge bracket. In my view, they are not yet at the level of sophistication that they are really competing on the advisory part of the spectrum.”
|Competition is always there and it’s been another competitive year – from a combination of local banks and international banks, and the Europeans are starting to re-engage with Asia
Debt capital markets in Asia-Pacific are also seeing the slow creep of Chinese banks into territory traditionally held by big global banks. Although the threat to market share currently seems quite low, bankers are acutely aware that Chinese banks are likely to compete more aggressively in the future.
“The Chinese regulators are very keen for the Chinese banks to go offshore in DCM,” says one debt banker at a bulge bracket firm in Asia-Pacific. “There is a big globalization drive on the political level in China. My experience is that the Chinese banks are very market savvy, but they have only started doing senior deals in the past couple of years.
“The Chinese banks have built themselves up, and in about three years, they will have hired a lot more people. When the Chinese banks are talking about offshore debt issuance, they are talking about Europe and the US, places like Frankfurt. They are growing their branches there.”
HSBC was top of the DCM revenue rankings table for Asia-Pacific ex-Japan in 2014 with $145 million of net revenue, maintaining their place from the previous year. Citi and UBS finished on an even footing for the next two places with $129 million of net revenue each.
“The big players in the DCM market are not seeing their market share eroding,” adds a second senior debt banker in Asia-Pacific. “But we are seeing many banks further down dropping in the league tables. Within China, we are seeing more activity from the Chinese banks. The encouraging thing for us is that we see a tremendous desire to run the financial system in China to international standards. I think the big agenda is not to grow a global bank, but to have the financial system operating on sound principles. Some of the regional banks, such as those from Singapore, are also doing quite well.”
But perhaps the most important battleground in Asia is in transaction services. The likes of HSBC, Citi, Deutsche Bank and Standard Chartered have long dominated this space. But they face increasing competition from other global players looking to build a presence in Asia, such as Bank of America Merrill Lynch, and ambitious regional firms – with the likes of ANZ seeing cash management as a route to deeper relationships.
Amol Gupte, head of Asia-Pacific treasury and trade solutions at Citi, says: “There is emerging competition. I would put a lot of regional competition in this tier, the large local banks. You can be regionally focused in this business, but if you want to be relevant for the largest corporates, who are the most ambitious and have global aspirations, then with a regional approach, you can't be relevant for them.”
Gupte adds: “Trade finance is a business with low barriers to entry, so you have a lot of competitors within that sector and a lot of local banks come in on the trade finance side, and that’s why rates are very low.”