Asian bankers have had a tough time of it over the last six months. They have had to deal with violent secondary markets, aggressive funding officials, dwindling capital markets revenues and huge exogenous risks that sent tremors throughout the region.
All in a day's work, a European banker might scoff, after seeing deal volumes in some asset classes this year collapse more horribly than market indices the day after an EU summit. Things may have been tough in Asia, but they have been a lot worse elsewhere.
The key difference between Europe and Asia, however, is what they offer for the future. Asian revenues may be small by global standards, but they are growing fast. Local banks should make sure that the global players do not steal all the business — and should now consider adding new hires to their Christmas lists.
Global banks with serious ambitions all have their own strengths and weaknesses, but one thing they share is ambition. No-one wants to specialise in one market at the expense of others, especially given the likelihood they can win business in one market from doing well in another, so all the serious foreign banks have invested in building teams across the Asian bond, equity and loan markets.
Their local rivals should do the same before it is too late. Some banks in Asia Pacific have already made aggressive moves to expand. Nomura stands out, reconstructing its capital markets business with a series of high-profile appointments at a time when other banks are just trying to stay afloat.
The Japanese bank has made clear its intention to grow in Asia, and not only hired Daniel Mamadou, an origination banker from Deutsche Bank, but also convinced Mark Leahy, a well-known former syndicate banker, to come out of retirement and take over its bond origination and syndication outside of Japan.
Nomura is not the only bank to have shaken up its team. Australia & New Zealand Bank, for example, has recently brought in Michael Luk, a former DCM head at Deutsche Bank and Bank of America Merrill Lynch, to take over its bond origination team. But Nomura has been the most aggressive and the most willing to gamble on bringing in new talent when the short-term outlook is pretty dire.
That is a smart move: the long-term fundamentals all but ensure that Asia will grow rapidly over the next decade, and the banks — and bankers — that put in the legwork now will be handsomely rewarded in the future. Consultancy firm McKinsey thinks that capital markets and investment banking revenues across Asia Pacific will grow to $158bn by 2015, around double what they are today.
Fixed income, currencies and commodities should be the biggest driver of that revenue growth. McKinskey predicts annual growth rates of around 15% for FICC businesses in Asia, showing that there is huge potential for both global and local players to profit from this business. But this revenue is going to end up in the hands of foreign banks and a few local players in each market, unless the regional lenders step up to the plate.
Chinese banks are the main long-term competitive threat to global banks, but that is because China is the market all banks want to break into, and the mainland lenders have an obvious advantage there. But few bankers expect to see much competition from even China’s biggest banks in markets such as Indonesia, for example.
That leaves a gap for regional players — but especially banks that have already built big deposit bases in well-developed countries — to step in and compete with the global banks. There is going to be a lot of revenue to go around over the next few years, but it takes years to build the teams and trust needed to truly compete. They should start now, before it is too late.