Asia saves the day amid banks slowdown

Record mergers and acquisitions activity by Chinese and Indian companies has helped investment banks’ Asian operations weather the credit crunch better than their US and European counterparts this year.

Investment banks have pocketed an estimated $4.3bn in fees in Asia-Pacific in the first five months of the year, according to Thomson Reuters. The region is on course to deliver its second most lucrative year on record.

While the figure is down 12 per cent on the period last year, investment banking revenues fell 38 per cent to $16bn in the Americas and 46 per cent to $9.4bn in Europe.

The data include fees earned from M&A, equity and debt capital markets and loans in Asia- Pacific excluding Japan. Fees earned from derivatives and trading are not included.

Revenues from equity capital markets in Asia-Pacific dropped 44 per cent to $1bn after the collapse in initial public offerings. But overall figures were boosted by an 11 per cent rise in revenues from M&A to $2.9bn.

There has been a steady flow of multibillion-dollar M&A deals in the region this year, including: the planned $18bn takeover of St George Bank by Westpac, its Australian rival; Tata Motors’ $2.3bn purchase of Land Rover and Jaguar marques; and unprecedented outbound Chinese investment in resources.

Investment banks’ revenues in the US and Europe have been dented by their disproportionate reliance on fees generated by M&A activity from private equity groups, which has dried up.

Matthew Hanning, head of M&A in Asia-Pacific for UBS, said: “Asia has not been as affected as the US and Europe by the downturn in the credit markets. M&A activity is being driven by the region’s strong economic fundamentals.”

Strategic buyers in countries such as China and India remain eager to build global scale.

Several very large deals involving Asian strategic buyers could materialise this year. Huawei Technologies, the Chinese telecoms network provider, is selling a stake in its mobile devices unit. India’s Reliance Communications is in merger talks with MTN, the South African mobile phone company.

Global investment banks are preparing for another increase in M&A activity by relocating star performers in New York and London to Asia.

(FT)