Investment banking fees drop 23pc in Asia
Global players switch to transaction deals to boost income as contraction bites
Therese Esperdy, a 17-year JP Morgan Chase veteran, suffered what she called "initial shock" in her first few weeks in Asia after three people told her some clients did not want to pay merger advisory fees.
"I thought: 'What I have done? I've moved to a region where clients don't even pay for M&A [merger and acquisition] advice. What do they pay for?'" said Esperdy, who relocated to Hong Kong in 2011 from the firm's New York headquarters to take charge of its advisory business and was made co-head of corporate and investment banking in Asia-Pacific the following year.
The answer, it turned out, was the stuff of everyday banking: corporate payments and remittances, cash management and trade finance - what are known as transaction businesses.
"If you are the management of the bank or the shareholder, it's actually a very attractive business because it creates a lot of sticky relationships between the banks and the customers," said Tjun Tang, a senior partner at Boston Consulting Group.
Years of contraction put pressure on global banks to diversify income streams. Fees for underwriting equities and bonds, as well as advising on mergers and acquisitions, shrank 23 per cent in Asia-Pacific from the beginning of 2011 to the end of 2013, according to New York-based research firm Freeman & Co. Such fees rose 23 per cent in the United States in the same period, data showed.
"In a developed-market context, and even in an emerging-markets context outside of Asia, most people would put M&A on the top of the value chain from investment banking products," Esperdy said. In Asia, the business was "lumpy and episodic" and the region far from homogeneous, she said.
Asia-Pacific wholesale transaction banking revenues are expected to triple to US$139 billion by 2022 from 2012, a BCG report showed. Investment banking fees including for mergers and acquisitions, equity and bond underwriting and syndicated loans were US$14.9 billion in Asia last year, compared with US$42.1 billion in the US, Freeman data showed.
