JP Morgan aims to top 10pc growth in Asian revenue
With strengths in currency and bond markets, investment banking unit co-chief says yuan deals will be a key driver as it expands its services
JP Morgan Chase, the largest bank in the United States, says it can achieve annual revenue growth of more than 10 per cent from its Asia-Pacific business over the coming years because of economic growth in the region and opportunities including the internationalisation of the yuan.
Daniel Pinto, a co-chief executive of JP Morgan's corporate and investment bank division, said the group would continue to build in Asia and expected sustainable business growth as it made further investments.
"We have made tremendous progress in building our international business and Asia is a big part of it," Pinto told the South China Morning Post during a recent visit.
One of the key driving forces of business growth in Asia in the coming years, he said, would be from serving the corporate sector, which has traditionally included mergers and acquisitions, and equity and bond issuance.
The internationalisation of the yuan would present opportunities as many of the bank's clients sought to settle trades in yuan or arrange yuan-denominated dim sum bonds, he said.
China has not yet allowed the yuan to become fully convertible but since 2009 has allowed international traders to use the currency to settle trades and make investments.
"The yuan is becoming a major player in the international trade settlement business. Three years ago, only 2.5 per cent of China's international trade flow was settled in yuan, but in the first quarter of 2013, this increased to about 15 per cent of the total," Pinto said.
JP Morgan is a major participant in foreign exchange markets and is one of the world's largest bond underwriters. It has a large team to provide overall yuan services for customers, from trade settlement to foreign exchange trading and yuan bond issuance.
"The internationalisation of the yuan is going to provide a lot of new business opportunities for international banks. We have seen more and more multinational customers using the yuan to settle trades or to make investments," Pinto said. "The yuan eventually will become a reserve currency, but that will take time and many years of work."
JP Morgan's income is equally split between its domestic business in the US and its international business.
Two-thirds of its international revenue are from Europe, while the rest is mainly from Asia, where it has operations in 14 markets and generates revenue of about US$6 billion annually. Its Asian headquarters are in Hong Kong with about 3,500 staff, while its mainland operation employs about 300.
"We want to expand our traditional banking businesses such as trade finance, funding, payments, and foreign exchange for our multinational corporate clients which have operations across many different countries. Cross-border activity from corporates is a key area of growth for us," Pinto said.
He said the major challenges for the banking industry would be adjusting to local and global regulatory changes, and operating in a new world that required more capital and less leverage.
"In totality, the new set of regulations is positive and will make the system more resilient and adequately capitalised. We still have concerns about some of the rules and what they are truly trying to accomplish, but in general, there's no doubt we will have a healthier financial system," he said. "Given all the new capital requirements and regulations, banks will need to manage their risks and costs much more efficiently in order to produce good returns."