Investment banking fees in Asia ex-Japan look likely to fall short of last year’s total, but there are signs of a rebound across most asset classes, helped by declining US interest rates that have started to boost offshore activity.
Fee income across bonds, equities, loans and M&A stands at US$14.4bn for the first nine months of the year, below US$17.7bn at the same point in 2023, according to LSEG data.
Still, the total income of US$5.1bn in the third quarter was the highest since Q3 2023. Debt capital markets business in the region brought in US$3.2bn, up 18% from Q2, helped by a late burst of issuance following the US Federal Reserve’s rate cut on September 18. Loans fees rose almost 10% quarter on quarter to US$573m, while ECM fees were down marginally at US$862m, though that did not include unregistered block trades totalling US$4.9bn in ADRs of China’s JD.com and Trip.com. M&A income declined to US$439.1m in the third quarter from US$527.9m.
Since US rates began to rise in 2022, Chinese banks have been the biggest earners in investment banking in the region, and while they still top the table their fee income shrank dramatically year on year while foreign banks’ revenue picked up strongly.
In the first nine months, Chinese banks took the top six places in the fee table, having occupied the top nine positions this time last year, as approvals for mainland equity offerings slowed. Citic Securities was unchanged at number one, but its fee take shrank by 38% to US$771.3m. The next four, Bank of China, CICC, China Securities and ICBC, saw their investment banking income decline 23%, 29%, 49% and 20%, respectively.
The top earning foreign banks were Morgan Stanley in seventh place and Citigroup in 10th. They recorded fee income of US$323.4m and US$280.9m respectively, up 55% and 24%.
Investment banking fees in mainland China dropped 25.8% to US$8.9bn, including a 72.9% plunge in ECM revenue.
“Hong Kong and China IPOs will remain muted for a while, but we are going to see more block trades,” a Hong Kong-based ECM banker said. “Investors are a bit more risk-on but remain selective.”
In contrast, Indian IB fees were broadly stable but ECM revenue more than doubled to US$471m in a red-hot market.
Citi’s ECM earnings almost tripled to US$94.5m in the first nine months, while Goldman Sachs’ income rose 41% to US$73m, JP Morgan’s by 30.1% to US$66.5m and Morgan Stanley’s by 42.9% to US$58.6m. CICC’s ECM fee income roughly halved to US$30.7m, while Citic’s fell 70% to US$37.3m.
Total fees for Asia ex-Japan DCM for the first nine months was little changed at US$8.9bn, up from US$8.8bn a year earlier, with Chinese firms continuing to take the top spots as low onshore rates encouraged mainland issuers to print in the domestic market. Top was Citic with US$616.3m, up 9.8% from the year-ago period, while second and third-ranked Bank of China and Industrial Bank saw modest declines. Top performing foreign bank HSBC booked US$132.4m, a 3.7% decline from a year earlier.
In G3 issuance, Citi, HSBC and JP Morgan were top earners with US$77.6m, US$70.1m, US$51.4m. This represented year-on-year increases of 41.9% and 5.9% for Citi and HSBC, and a 18.3% decline for JP Morgan.
The top earners in M&A were Morgan Stanley, UBS and Goldman Sachs with US$136.6m, US$126m and US$81.2m, respectively.
“Small and mid-cap deals have been going on,” said a Hong Kong-based M&A banker. “We expect to see larger cap deals in the ballpark of US$2bn come back after interest rate cuts.”
Bank of China, HSBC and DBS were the top-earning loan banks with US$221.5m, US$85.8m and US$63.7m, declines of 39.2%, 9% and 0.4%.
“With the interest rate cycle, lower inflation and borrowing costs, the emerging markets including ASEAN growth outlook on a relative basis is looking attractive for 2025,” said Vineet Mishra, head of investment banking for South-East Asia at JP Morgan. “The consensus view is now that emerging markets should outperform in terms of growth and capital markets.”
While India has been an active IPO market and recent Hong Kong listings have done well, the rest of the region has been quiet.
“When it comes to equity capital markets there has been an element of waiting for rates to come down, especially when it comes to IPOs,” said Mishra. “I think activity is about to start again.” He said the lower rate environment could support REIT listings next year, with data centre operators expected to look at issuance.
(Additional reporting by Suzannah Benjamin)