By Hudson Lockett
HONG KONG- Western investment banks spent years going all-in on China. Now, slowing growth and lacklustre listings from Asia’s largest economy have them scrambling to find business elsewhere. The alternatives are either too small to make up the difference, or suffer from a short supply of talent.
Last year, fees paid to investment banks by Chinese companies fell more than a quarter to $6.1 billion, the lowest level in almost a decade, according to data from Dealogic. And at $1.9 billion so far this year, fees from the People’s Republic account for less than 40 percent of the Asia-Pacific total, compared to a pre-pandemic norm of about half. China’s draw is sharply reduced from a peak of nearly $12 billion in 2021.
Wall Street once raked in bumper revenue from big Chinese names going public in New York or Hong Kong, but now those offshore initial public offerings are few and far between. What listings do still come through mostly head to Shanghai or Shenzhen, where stiff local competition keeps fees low.
That contraction is forcing both Wall Street and domestic state-backed firms like Citic Securities and China International Capital to consider slashing investment banking headcount on the mainland and in Hong Kong, Reuters reported. JPMorgan CEO Jamie Dimon admitted last month that parts of the bank’s China business have “fallen off a cliff”, according to the Financial Times.
Wall Street is unlikely to fully give up on its China ambitions. The recent rally in Chinese stocks will give executives hope that business will return, at least in part.
Advisers, nonetheless, are on the hunt to replace disappearing mandates in the People’s Republic with deals in South Korea and India — where revenue has held up reasonably well — and to a lesser extent, Australia. But those markets lack sufficient scale.
Japan is the great hope. Fees there rose by nearly a third last year to $3.2 billion, and the $1.2 billion paid by Japanese corporates so far in 2024 accounts for more than a quarter of the regional total. One veteran financier at a Wall Street firm in Tokyo estimates investment banking revenue in the country could double over the next three years. That could offset much of the income western banks have lost from China, provided they can capture enough of that new business. – Reuters
