This article was produced by IFR and originally published on www.IFRe.com.
Banks outside China have struggled to earn fee income in Asia Pacific ex-Japan this year, as weak appetite for emerging markets caused issuers to shelve plans for IPOs or offshore bonds.
- Total investment banking fees were US$22.3bn for the first three quarters, down 11 percent year on year.
- ECM fees for the region were down 28 percent at US$5.8bn. While income from IPOs fell 17percent.
- DCM fees were flat at US$10.9bn, but mainland Chinese issuance dominated.
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Many international banks have seen a steep decline in fees from equity capital markets and bonds while growing only in the lower-paying loan market.
Total investment banking fees were US$22.3bn for the first three quarters, down 11 percent year on year.
Chinese banks took a disproportionate share of that as the Shanghai and Shenzhen stock markets accounted for more than half of global IPO proceeds and policy easing onshore encouraged companies to issue bonds in renminbi rather than US dollars.
Chinese banks took the top 11 positions in the fee league table. Citic was top with US$1.5bn for a 6.7 percent market share, followed by Bank of China with US$1.3bn and 5.6 percent, and CICC with US$966m and 4.3 percent.
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Citic’s fee take was up 8.5 percent from the same period last year. In contrast, the top-ranked international bank, Goldman Sachs, booked US$406m of fees, down 44 percent year on year, while Morgan Stanley and JP Morgan saw their fee incomes halve. These US banks had been particularly active in leading listings of Asian technology companies, a sector that has dwindled after tech valuations slumped worldwide.
ECM fees for the region were down 28 percent at US$5.8bn. While income from IPOs fell 17 percent, follow-ons were hit the hardest as the volatile market made secondary offerings difficult, with fees paid dropping 44 percent. Many vendors have arranged equity derivatives transactions this year rather than attempting to sell stakes through block trades, according to derivatives bankers.
Citic, CICC and China Securities were the top fee earners in ECM, with US$672m, US$468m and US$446m, respectively, while UBS was the best-performing non-Chinese house with US$122m. The Swiss bank benefits from being able to sponsor Shanghai Star market IPOs.
DCM fees were flat at US$10.9bn, but mainland Chinese issuance dominated. More than half of the fees were paid to Chinese banks, which made up 24 of the top 25 fee earners in DCM for Asia ex-Japan. Citic topped the list with US$684m of fee income, more than four times what HSBC, the only non-Chinese bank in the top 25, earned. HSBC’s fee income from DCM shrank 25 percent to US$144m as Asia G3 volume dwindled.
The Asian high-yield bond market was hit hardest, with fees down 79.7 percent at US$120.5m.
Banks are seeing a lot more activity and interest on the private credit side, given the rising rate environment, according to a consultant, but these issues are not captured in the league table data.
Banks with strong corporate banking businesses are still seeing healthy flows while one-off deal volumes are down.
Overall loan fees were down slightly, to US$3.1bn from US$3.2bn, but several banks have made good gains this year. At the top of the table, the Bank of China and Industrial and Commercial Bank of China saw their loan fee income grow 24 percent and 50 percent to US$687.4m and US$131.5m, respectively, giving them wallet shares of 22.3 percent and 4.3 percent.
In third place, ANZ booked US$115.4m of loan fee income, up 18 percent. Credit Agricole in 14th place saw fee income jump 29 percent to US$52.6m.
HSBC had the top fee income for any foreign loan house last year, but this shrank 27 percent from last year to US$114.6m. That put it in fourth place.
Total M&A fees slumped to US$2.6bn from US$3.0bn. Goldman Sachs, Morgan Stanley and CICC were the top-earning banks.
By geography, China IB fees dropped 9 percent to US$15.4bn, with M&A seeing the biggest decline. Fees for Hong Kong slumped to US$1.1bn from US$1.5bn a year earlier as the city’s IPO market struggled and strict measures to control Covid-19 limited economic growth.
Fees from Australia increased 9 percent to US$2.5bn, while Macau’s income was up 400 percent at US$56m.
While investment banking fees marked a steep decline from last year, they are still tracking above pre-pandemic levels. The total IB fee taken across Asia ex-Japan in 2019 was US$23.4bn, while DCM, ECM and loans brought in US$11.4bn, US$5.3bn and US$3.4bn, respectively.
Even if banks beat their pre-pandemic performances in most asset classes this year, many hired rapidly on the back of booming deal activity in late 2020. Many of the new hires came in ECM or in industry coverage for healthcare or technology, as companies from those sectors planned IPOs.
The reduced deal flows this year, especially in the IPO market, has led banks including Goldman Sachs to cut some bankers in these areas.
Others have made cuts to Greater China DCM coverage as issuance remains depressed, thanks to rising US dollar rates and a slew of defaults from Chinese property companies.
As rate volatility makes it harder to complete bond deals, many corporate issuers have turned to loans, where there is more certainty of completion.
However, there is one other area where activity is booming, and the outlook is bright.
“There’s a lot of downsizing in the IB business, but we are busy as hell and keep growing and hiring,” said a Chinese restructuring adviser.
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