People power may determine banking drive
Tuesday, 18 December 2007
Sundeep Tucker from Hong Kong
INVESTMENT banks like to boast about how successful their Asian operations have become, and that the acute shortage of decent staff is the only thing limiting even faster expansion.
There is little debate over figures that show combined revenues for the banks are growing at 35 per cent per annum, or the prediction that this should continue for a while yet.
But try to scratch under the surface and it's difficult to pin down precisely where the investment banks' earn their revenues.
Mergers and acquisitions advice, sales and trading, arranging initial public offerings, and principal investments are among the cash cows.
Data providers such as Thomson Financial and Dealogic take a stab at estimating core investment banking revenues - activity covering M&A, capital markets and loans.
On these measures, and excluding Japan, this year will set another record for revenues in Asia - estimated to hit $13bn or 250 per cent higher than just three years ago.
Incidentally, UBS is set to finish top of this particular league table this year with its regional business firing strongly in China, India and Australia.
Having struck an unusual venture deal with Beijing Securities, the Swiss bank is able to arrange mainland A-share and Hong Kong H-share listings. It has also worked on a stream of deals in India and Australia, including Vodafone's entry into the Indian mobile phone market.
The growth in Asian revenues underscores how the region has this year been a bright spot for global investment banks such as Citigroup, Merrill Lynch and UBS that have suffered on a global level from fall-out linked to the US subprime crisis.
Those people looking for more detailed illumination of Asian banking revenues should pilfer a copy of an inaugural report published recently by Oliver Wyman, a consultant to the industry's leading lights.
The study estimates that annual revenues derived from the broader corporate and institutional banking sector in Asia, including Japan, last year climbed to $150bn. This compares with $190bn in Europe and $250bn in North America.
The report is largely focused on banking businesses in the Asian region, excluding Japan and Australia, which the author predicts will generate revenues of $70bn this year.
Of this amount, Oliver Wyman says that $40bn in annual revenues is generated by traditional industry products of lending and transaction banking, although this sector was growing in line with economic growth at (only) 10 per cent a year.
The report estimates that Asian investment banking revenues, including fees earned from sales trading, derivatives, cash equities and commodities businesses will this year surpass $30bn.
Oliver Wyman will not divulge names but says that leading global players now each make at least $1.8bn every year from their Asian investment banking business. The region is no longer a rounding error for banks' chief financial officers.
The big question next year is whether investment banks will be able to carry on with their rate of expansion, thanks to recruitment challenges or because senior minds at headquarters in New York and Zurich are more focused on fighting fires closer to home.
Report author Matt Austen, head of Oliver Wyman's Asia corporate and institutional banking practice, says he is looking for signs of "strategic contagion".
He says: "The big issue facing some investment banks next year is whether they will invest enough in staff to keep up with Asian growth given their losses [relating to US subprime]."
Indeed, one of the clearest signs of banks' attitudes towards their Asian operations will surface in the ongoing talks about year-end bonuses. Slash the "comp" too much and a high-performing unhappy banker in Asia could reasonably expect to walk into a higher paid job giving the current labour market.
As it stands, though, all signs point to investment banks motoring ahead with expansion plans, with the focus on China, India and south-east Asia.
Beijing is expected to announce soon, how it plans to liberalise its domestic securities industry - which has been largely shut to foreigners. If and when the walls start to come down, many more global investment banks will be looking for extra staff to help underwrite Shanghai IPOs and the like.
The straws in the wind also include the latest announcement by Credit Suisse that it has signed up for 10 floors in Hong Kong's International Commerce Centre, the 118-storey tower being erected in unfashionable lower Kowloon. Morgan Stanley has previously signed up for a similar amount of space.
The space taken by Credit Suisse is enough to accommodate twice the number it currently employs in the city - although the bank will expect to lose a few of them ahead of the move as diehards refuse to work across the harbour.
FT Syndication Service
INVESTMENT banks like to boast about how successful their Asian operations have become, and that the acute shortage of decent staff is the only thing limiting even faster expansion.
There is little debate over figures that show combined revenues for the banks are growing at 35 per cent per annum, or the prediction that this should continue for a while yet.
But try to scratch under the surface and it's difficult to pin down precisely where the investment banks' earn their revenues.
Mergers and acquisitions advice, sales and trading, arranging initial public offerings, and principal investments are among the cash cows.
Data providers such as Thomson Financial and Dealogic take a stab at estimating core investment banking revenues - activity covering M&A, capital markets and loans.
On these measures, and excluding Japan, this year will set another record for revenues in Asia - estimated to hit $13bn or 250 per cent higher than just three years ago.
Incidentally, UBS is set to finish top of this particular league table this year with its regional business firing strongly in China, India and Australia.
Having struck an unusual venture deal with Beijing Securities, the Swiss bank is able to arrange mainland A-share and Hong Kong H-share listings. It has also worked on a stream of deals in India and Australia, including Vodafone's entry into the Indian mobile phone market.
The growth in Asian revenues underscores how the region has this year been a bright spot for global investment banks such as Citigroup, Merrill Lynch and UBS that have suffered on a global level from fall-out linked to the US subprime crisis.
Those people looking for more detailed illumination of Asian banking revenues should pilfer a copy of an inaugural report published recently by Oliver Wyman, a consultant to the industry's leading lights.
The study estimates that annual revenues derived from the broader corporate and institutional banking sector in Asia, including Japan, last year climbed to $150bn. This compares with $190bn in Europe and $250bn in North America.
The report is largely focused on banking businesses in the Asian region, excluding Japan and Australia, which the author predicts will generate revenues of $70bn this year.
Of this amount, Oliver Wyman says that $40bn in annual revenues is generated by traditional industry products of lending and transaction banking, although this sector was growing in line with economic growth at (only) 10 per cent a year.
The report estimates that Asian investment banking revenues, including fees earned from sales trading, derivatives, cash equities and commodities businesses will this year surpass $30bn.
Oliver Wyman will not divulge names but says that leading global players now each make at least $1.8bn every year from their Asian investment banking business. The region is no longer a rounding error for banks' chief financial officers.
The big question next year is whether investment banks will be able to carry on with their rate of expansion, thanks to recruitment challenges or because senior minds at headquarters in New York and Zurich are more focused on fighting fires closer to home.
Report author Matt Austen, head of Oliver Wyman's Asia corporate and institutional banking practice, says he is looking for signs of "strategic contagion".
He says: "The big issue facing some investment banks next year is whether they will invest enough in staff to keep up with Asian growth given their losses [relating to US subprime]."
Indeed, one of the clearest signs of banks' attitudes towards their Asian operations will surface in the ongoing talks about year-end bonuses. Slash the "comp" too much and a high-performing unhappy banker in Asia could reasonably expect to walk into a higher paid job giving the current labour market.
As it stands, though, all signs point to investment banks motoring ahead with expansion plans, with the focus on China, India and south-east Asia.
Beijing is expected to announce soon, how it plans to liberalise its domestic securities industry - which has been largely shut to foreigners. If and when the walls start to come down, many more global investment banks will be looking for extra staff to help underwrite Shanghai IPOs and the like.
The straws in the wind also include the latest announcement by Credit Suisse that it has signed up for 10 floors in Hong Kong's International Commerce Centre, the 118-storey tower being erected in unfashionable lower Kowloon. Morgan Stanley has previously signed up for a similar amount of space.
The space taken by Credit Suisse is enough to accommodate twice the number it currently employs in the city - although the bank will expect to lose a few of them ahead of the move as diehards refuse to work across the harbour.
FT Syndication Service