Slump in Asian IPOs hits bank revenues

by Dave Nixon

Story link: Slump in Asian IPOs hits bank revenues

Investment banks have suffered a bad start to the year in Asia after their most profitable year in the region in 2007.

Revenues from equity capital markets have fallen harshly as fewer companies have braved unstable market conditions to go public.

The region has been a harsh market for banks after a hefty number of companies postponed or cancelled preliminary public offerings, preferring to wait for enhanced opportunities to sell shares. The MSCI Asia excluding Japan index, a barometer of the region’s stock markets, has fallen about 18 per cent this year.

Fees earned from equity and debt capital markets fell 15.9 per cent and 52.3 per cent respectively. However continued takeover activity saw fees from Asian mergers and acquisitions increase 3.6 per cent to $1.38bn.

China’s Citic Securities rose to third in the league table of overall fee revenues in the region, up from number 13 in 2007, thanks to several large deals including the $5.44bn IPO by China Railway Construction Corp.

UBS topped the league table despite a 53.3 per cent plunge in revenues from $171m last year to $80m so far this year. The Swiss bank, which derived nearly 80 per cent of fees from M&A, is followed by Citigroup and Citic. Merrill Lynch and JPMorgan took the other top five places.

Citic, which sponsored both the Hong Kong and Shanghai portions of CRCC’s IPO this month, saw revenues surge 425.1 per cent to $55.9m.

The success of Citic, one of China’s main brokerages, comes as local firms carry on dominating the underwriting market in Asia, especially in primary offerings, according to a separate report by Oliver Wyman, an industry consultant.

Apart from Hong Kong and Singapore, where international investment banks still direct the market, local brokerages tend to arrange most deals in other countries. China’s top three underwriters are Citic, CICC and Guotai Junan, said Oliver Wyman. All of the five largest players in Taiwan are local firms.

Among the top 10 in Thomson Financial’s league table, Goldman Sachs’ fees dropped most, by 70.9 per cent from $97.3m to $28.3m. Total investment banking fees fell 5.4 per cent to $2.1bn compared with $2.22bn in the same period last year.