IB revenue in Asia slumps by nearly 20% in Q1
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

IB revenue in Asia slumps by nearly 20% in Q1

Political instability and external headwinds have taken their toll on investment banking revenues in Asia.

Investment banking in southeast Asia experienced a strong dip in net revenue in the first quarter of 2015 due to political instability and negative external headwinds from outside the region, according to several market players.


 While the market has been relatively quiet in Singapore at the start of the year, we expect to see more activities

Eng-Kwok Seat Moey,
DBS Bank

The Asia-Pacific region as a whole saw investment banking revenue drop considerably in Q1 – around 17% year-on-year for Apac ex-Japan. Southeast Asia has seen some of the steepest falls after a particularly strong run over the last few years.

“You tend to see a big slowdown in M&A and ECM activity in the region partly due to some of the geopolitical situations in southeast Asia,” says Alvin Lim, head of banking advisory, southeast Asia, at HSBC.

“Deal volumes haven’t really changed in southeast Asia, but the deal values have come down quite a lot. The M&A pipeline is much stronger than the ECM pipeline, and we are seeing some bright spots around.”

He adds: “I expect Indonesia to pick up this year, for example. I would say the long-term view remains positive.”

Net revenue for investment banking in southeast Asia for the first quarter of this year was $238 million, down from $300 million in the same period for 2014, and down from $392 million in Q3 of last year, according to Dealogic.

The weak Q1 figures follow a poor 2014 for investment banking in southeast Asia, where total net revenue fell to $1.3 billion, down from around $1.7 billion in 2012.

“Southeast Asia looked quite strong in investment banking a couple of years ago, with deals happening in places like Malaysia and Indonesia, but that has subsided,” says Gene Fang, associate managing director, FIG, at Moody’s.

“It is now noticeable that the banks have cut back. Southeast Asia is a bit reflective of what happens in China, and a lot of the macro momentum that China provided has come off. And as China looks to restructure, you see a lot of bankers focusing their attention there instead of southeast Asia.”

Political uncertainty

Malaysia’s CIMB is one example of a bank from the region cutting back. It issued a strategy document at the start of February revealing the company will look at reducing its overall investment banking operating cost by about 30% in 2015 after the collapse of the country’s proposed mega-merger.

Net revenue for DCM in southeast Asia has remained relatively stable over the past few quarters, but ECM, M&A and syndicated lending figures all dropped off considerably from the last quarter of 2014 to the first quarter of 2015.

“If you look at this year, we have a period with quite a bit of political uncertainty in southeast Asia and I don’t think most of those questions have been answered,” says Keith Pogson, global assurance leader and senior partner, financial services, Asia-Pacific at Ernst & Young.

“Malaysia is in a sort of emotional quiet place because of certain events. Thailand still has the military coup in place. And Singapore obviously had the passing of its founder, so I think people have been cautious about what to do there in terms of deals. There are probably still deals happening in the Philippines, but it’s generally not that big a market.”

In the background, you have taper-tantrum two on the horizon, which influences views on asset values

Keith Pogson, Ernst & Young 

Instability on a national level in the region is also being compounded by several macro factors that are serving to dampen southeast Asia’s prospects for higher IB revenues.

“In the background, you have taper-tantrum two on the horizon, which influences views on asset values,” says Pogson.

“The agricultural and commodity sectors that are a large part of southeast Asia are not in an exciting place. If you look at what’s exciting globally, it’s sectors like healthcare and digital networks, but there is not too much of that in southeast Asia. It is only going to make economic sense to a certain number of investment banking players to be in that market.

He adds: “One trend there is that the regional banks have been very successful in picking up deal flow, so it doesn’t make sense for some of the international players to be there anymore.”

One of the regional banks that has been on an upward trajectory across a number of business areas in recent years is Singapore’s DBS. The bank encapsulates the model of a regional player that has capitalized on the pullback of some of its international rivals.

“While the market has been relatively quiet in Singapore at the start of the year, we expect to see more activities, including IPOs and secondary fundraising, in the second half,” says Eng-Kwok Seat Moey, head of capital markets at DBS Bank.

“We continue to see strong interest from medium-sized enterprises and Reits/business trusts with foreign sponsors.”

Some bankers remain upbeat about the upcoming pipeline of deals in the region, but the severity of the downturn and the shedding of jobs that has accompanied it suggest some banks are bedding in for a longer downturn.

And the lack of enthusiasm to carry loss-making businesses in the current environment means figures such as those coming out of southeast Asia do not bode well for some in the region.

Gift this article