Some Asian bankers looking back on this year will remember it as breath-taking, a time when their resources were stretched more than ever before, and their revenues grew in equal measure. But for others, 2012 was mind-numbing, at best — and sometimes just plain depressing.
The bond market has set a record pace, but bankers working in loans and ECM have gone through long bouts of relative inactivity and have been forced each quarter to confront dwindling volumes.
The shift in debt funding, in particular, has been blamed at least partly on the European crisis — which has reduced the willingness of some European banks to lend to their Asian clients — but this is far from being the only factor, and it would be a big mistake to blame the news cycle for what amounts to a fundamental change in Asian debt funding.
The bond market has stolen the thunder from ECM and loans this year, and this is unlikely to change soon.
Bonds will not back down
There has been some impact on loans volumes from the European crisis, of course. There has also been some impact from Basel III, which few banks want to head into after a lending frenzy.
But Asian borrowers have been pulled to the bond market just as much as they have been pushed from loans, reflecting what many DCM bankers feel is the natural rise of a market that always appeared to them much smaller than it should have.
Asia’s bond market still pales in comparison to the size of those in Europe and the US, but bankers in the region are making sure to change that as quickly as possible. They got some help this year not just from the reduction in loan volumes, but also from the choppy stock market.
The volatility of equity markets this year has driven fund managers to increase their allocation to what has been a much more reliable credit market. Hong Kong’s Hang Seng Index is up more than 20% on the year — but only those investors with deep pockets and nerves of steel will have been able to hold on amid the huge drop that occurred in the first half, as well as the periodic and violent corrections that have happened over the last six months.
ECM bankers are crossing their fingers for things to change next year, and know that a good start to the year in the secondary market could help them generate a slew of block trades, and even convince some companies to push ahead with IPOs.
But few bankers are really bullish about where their market is going. Most fear that their revenues will get hit from a double-whammy of weaker deal flow and a growing tendency among Asian companies to mandate ten banks to lead an IPO, when five would do.
Loans bankers are also, on the whole, sceptical about the direction of volumes next year. Loan volumes in Asia ex-Japan have fallen more than 20% compared to this time last year, according to Dealogic data, and G3 volumes are down over 35%. They may improve from these depressing levels, but the G3 bond market has already eclipsed syndicated lending, and that is not something that is likely to change next year.
The struggle of ECM and loans bankers to generate business is not, in itself, bad news for big companies. But markets that become less appealing for banks will soon become even worse for these companies, as bankers decide to scale back their teams to match the weaker volumes.
This is not to say that the loan and ECM markets will suffer quite as much as they did this year. It would be foolhardy to predict exact volume figures. But one thing seems clear: the bond market has been the only game in town this year, and in 2013, it is unlikely to move out of the spotlight .