Asian investment banking and rightsizing workforce

Uncertainty is back in Asian investment banking as international banks take a relook at their Asian operations. Employee strength at Bank of America Merrill Lynch and Goldman Sachs are slated to be cut due to increased local competition and also reduced advisory fees. The expenses slash span a number of markets and products. Maximum pressure is exerted by a dip in revenues generated from equity underwriting. There was a 23 percent slide of fees from Asia Pacific equity along with the equity related deals.

Further cuts ahead

As per data extracted from Thomson Reuters or Freeman Consulting, revenues from debt underwriting-in contrast- are up. Regional activities of and related to Mergers and Acquisitions is down by only five percent during the identical period in 2015. There is a belief among analysts and bankers that further ECM cuts are in the offing as Chinese banks slowly capture the market with much lower fees. Such a view is echoed by Veronique Lafon-Vinais of Hong Kong University of Science and Technology. He has banking job experience in Asia, US and Europe. He said that ECM is the main provider of investment banking revenues with the Asian region. With the Chinese banks muscling on the territory, they cannot compete with the competition.

According to Reuters, Goldman will right size its investment banking personnel by 30 percent. Its present employee strength is about 300. The organization continues to remain the premium M&A adviser when it comes to Asia Pacific transactions. It has, however, slid from its first position to the eighth on the ECM league table of Asia.

Despair all around

According to Thomson Reuters or Freeman Consulting, Goldman Sachs, in 2014, earned approximately $204 million from the Asian ECM underwriting. In 2015, it clocked revenues of $107.7 million. This year saw it taking home only $44 million. It is to be noted that this data utilizes a proprietary model for estimating the earnings when fees are not publicly told.

Deutsche Bank is also suffering the same problem as Goldman Sachs. In 2011, it was third in the fee table. The former is now rankled 16tth. Credit Suisse has also dropped from its second position to 2014 to the 34th position in 2016. Western arrangers were put under the burner due to the US listings slowdown. IPOs in Hong Kong, to illustrate the changed scenario, comes with extremely small underwriting fees and inflated bookrunning syndicates.

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