Downtown Tokyo in this photo from July. Long in the doldrums after its 1980s bubble economy burst, Japan was recently eclipsed by China as the world’s second-biggest economy.YURIKO NAKAO/Reuters
A drop off in investment banking fees in Europe is to be expected, but the big decline in fees coming from Asia has to be a big concern for all the firms that spent recent years expanding there in a big way.
Investment banks are pulling in fee revenue at the slowest pace in three years, as companies cut back on equity offerings and mergers. According to figures from Thomson Reuters, fees for deals were $51.9-billion (U.S.) in the first three quarters of the year. That's 14 per cent less than in the first nine months of last year, and the lowest since 2009's first nine months.
Fees fell in all the major regions, with Europe and Asia leading the decline. Europe should be no surprise. But the 21 per cent decline in fees coming from Asia-Pacific is a body blow for firms that have been spending a lot of time and energy on building up Asian operations.
Executives will plead that nobody invests for the next few months, especially in Asia, where lead times on developing a business are notoriously long. But the decline in fees from the region is sure to have some board members and investors wondering if planting a flag in Asia right now is worth the cost.
There's another troubling number in the Thomson Reuters report: 1.1 per cent. That's the compound annual growth rate in global investment banking fees since 2008, when the financial crisis ended. In the three years leading up to the crisis, the growth rate was just a tick under 20 per cent a year.
Investment banking has shifted from a business where everybody is benefiting from a growing pie, to one where the only way to grow is to take market share.
So just who is doing that? Canada's banks, led by Royal Bank of Canada, that's who. The bank's investment banking business posted the biggest increase in share of fees of all the top 25 banks tracked by Thomson Reuters.
RBC's fees rose 24 per cent to $1.36-billion, Thomson Reuters estimated. That put it in 11th place globally. The investment banking units of Bank of Montreal and Toronto-Dominion Bank also made the top 25, and posted increases in market share.