Wall St banks feel equities fee pinch as Chinese competition bites

Tue Oct 6, 2015 4:08am EDT
 
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By Elzio Barreto

HONG KONG (Reuters) - Despite record deal volumes this year, Wall Street banks are earning less when helping companies raise equity in Asia as Chinese rivals increasingly eat away their margins, a Thomson Reuters quarterly survey of investment banking activity shows.

Equity listings in the Asia-Pacific region excluding Japan surged 40 percent to a record $197.2 billion in the first nine months of 2015 from a year earlier, with Goldman Sachs (GS.N: Quote) and UBS UBSG.VX topping the regional list of underwriters.

But fees earned by the international banks in this space fell or remained flat over the same period, a consequence of tougher competition in a segment that generates the lion's share of investment banking revenues in Asia, according to Thomson Reuters/Freeman Consulting Co estimates in the survey.

UBS, the best performer among the four international banks in the list of top 10 Equity Capital Markets (ECM) fee earners, kept its revenues nearly flat at an estimated $205.9 million in January-to-September. Goldman Sachs and Morgan Stanley (MS.N: Quote) saw a decline of around 20 percent, and JP Morgan's (JPM.N: Quote) fees fell 15.7 percent.

By contrast, the top six Chinese players all saw an increase in fees. CITIC Securities (600030.SS: Quote), the top earner, increased its fee income by nearly 50 percent to $246 million. Guotai Junan Securities Co Ltd 601211.SS, saw a 58 percent rise in fees, and China Merchant Securities 600999.SS nearly doubled its fee income.

"The Chinese houses are slowly but surely building up market share at the expense of international players," said Philippe Espinasse, a former ECM banker at UBS and Nomura.

The equity fee pool for the region rose 10 percent to $4.5 billion, much less than the 40 percent increase in deal value over the same period, reflecting a jump in less lucrative follow-on offerings.

Goldman Sachs, JPMorgan, Morgan Stanley and UBS declined to comment on their fees when contacted by Reuters, while Chinese firms including CITIC Securities and Haitong, didn't reply to Reuters requests for comment on their ECM fee gains.   Continued...

 
A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013.  REUTERS/Mike Segar