Asian IB fees slip as war slows momentum
Investment banking fees in Asia Pacific ex-Japan fell in the first quarter as the US/Israel war on Iran dampened the pace of dealmaking in March, even as earnings from equity capital market deals climbed.
Banks earned US$5.3bn in fees from January to March, down 4.9% from a year earlier, according to LSEG data. Fees from ECM deals jumped 61.6% to US$1.3bn, marking the best first quarter showing since 2023, but earnings from all other asset classes declined.
Bankers noted there was a sharp increase in deal volume in January and February, followed by a moderate slowdown since the start of the war on February 28. Even so, appetite for larger deals remains intact and bankers say investors remain engaged.
The top five earners were Chinese banks. Citic, which comprises Citic Securities and Citic CLSA, held on to first place with total fees of US$340.6m.
China International Capital Corporation came in second with US$192m, a 23% increase from the year-ago quarter when it ranked third.
Guotai Haitong Securities took third place with earnings of US$154.6m, Huatai Securities was fourth with US$142.8m and China Securities, in fifth place, brought in US$137.8m.
Morgan Stanley brought in fees of US$137m, helping the US bank rise two spots from last year to sixth place. UBS was the only other non-Chinese bank in the top 10 earners at eighth, with fees of US$110.6m.
Equities stand out
Equity capital market deals buoyed earnings for most of the top earners. Citic, CICC, Morgan Stanley, UBS and Goldman Sachs generated the highest fees for the asset class in the three-month period. Fees more than doubled from the year-ago quarter at Citic, CICC and UBS to US$96.8m, US$82.6m and US$66.8m respectively.
CICC earned US$53.9m from initial public offerings in the quarter, more than triple the US$15.4m it brought in during the same period last year.
"The first quarter delivered a solid performance for our IB business. While the ECM side can be volatile amid changing market conditions and regulatory developments, we saw a robust business momentum. We completed a number of landmark transactions especially ahead of the Chinese New Year holiday," said Xu Jia, deputy head of the investment banking department at CICC. "For the remainder of the year, we hold a cautiously optimistic view."
Banks have been busy with over 400 IPO applications in the pipeline in Hong Kong after the city regained its place as the world’s top listing venue last year with more than US$37bn of proceeds.
There is uncertainty as to how many deals will actually come to market this year as Hong Kong regulators are clamping down on poor quality listing documents after identifying some "serious deficiencies" in filings.
"For high quality IPOs, investors are still quite keen, although not all IPO deals have seen strong oversubscription. A majority of quality offerings continue to attract investor interest," Xu said.
Bankers said that the Hong Kong-China market appears to have been resilient during the conflict.
"Even if you just look at share performance, we are seeing orderly trading in Hong Kong-China. People do see Hong Kong-China to be an attractive place to continue to put capital," a Hong Kong-based ECM banker said.
Geographically, China made up US$3.6bn of total Asia fees, up 5% from the same quarter last year. Meanwhile, fees earned from Australia, South Korea and India deals fell 20%, 28%, and 30%, respectively.
Morgan Stanley was the biggest earner from follow-ons during the first quarter with US$41.8m, while Goldman Sachs topped the convertible bonds fee table with earnings of US$31.6m. UBS took second place in both asset classes, earning US$34.3m from follow-ons, up 168% from a year ago, and bringing in US$27.9m from CBs, up 104% year on year. Bankers remain optimistic about the equity-linked market in Asia, especially from larger, more liquid names.
“The risk-reward for equity-linked products offers a much more balanced exposure to investors considering what’s going on – it gives you some amount of protection and equity upside. [Recent large CBs across Asia] were well subscribed, and valuations have held up pretty well,” the ECM banker said.
For instance, cloud infrastructure provider Wiwynn in March raised US$2bn from a five-year zero-coupon convertible bond, Taiwan's largest ever.
Fees from debt capital market deals slipped 2.7% from a year ago to US$3.2bn.
Citic held on to its top spot, earning US$221.4m from bond market deals, up 2% from a year ago.
Bank of China’s earnings slipped 17% from a year ago to about US$108m but it still came in second. Guotai Haitong Securities also brought in about US$108m for third place.
"We expect the debt market, especially the onshore China primary market, to remain relatively stable this year, with no significant expansion in overall issuance volume on the primary market issuance side," CICC's Xu said. "We are seeing growing interest among international issuers in renminbi-denominated bond offerings, although this segment still accounts for a relatively modest portion of the broader market."
JP Morgan remained the top earner for high-yield bond issuance, bringing in US$3.9m for a 15.5% market share. Barclays came in second with US$2.7m. UBS earned US$1.9m and took third place versus 20th a year ago.
In investment grade, Citic remained the top earner with fees of US$156.4m.
HSBC remained the top fee earner for G3 bonds despite a 32% year-on-year decline to US$23.4m. Citigroup took second place with fees of US$19.5m. Meanwhile, JP Morgan dropped one place to number three with fees of US$19.4m.
Earnings from loans tumbled 43% to US$311m. HSBC was the top earner despite a 20% decline in fees to US$16.5m. DBS Bank came in second with fees of US$15.8m. Bank of China, which was the top earner in loans last year, dropped to fourth place after an 82% decline in fees to US$13.4m.
Earnings from mergers and acquisitions nearly halved from a year ago to US$512.1m. Morgan Stanley’s M&A fees for the quarter dropped 30% to US$46.1m, but it was still the biggest earner in the asset class.