It is the tail end of summer 2016, which is about the time when investment bankers start to fret about how their year might end. These days, the worry is not so much about the size of the bonus pool as much as about job security. If you take a glance at the league-table rankings and where some of these once mighty global investment banks are, it is best not to read further.
To be sure, the year has had a rough start what with the circuit-breaker turmoil that hit China’s stockmarkets and wiped out US$5 trillion of the market capitalization of Shanghai and Shenzhen. And it looks like the first six months have remained just as challenging. Equity volumes are down by nearly 40% from a year ago; G3 bond activity is down by over 7% while advisory work for announced M&A deals is off by over 12% in terms of value.
Even more startling, data from Thomson Reuters as of August 22 indicate, is how far a number of these international banks have fallen in the equity league table. Goldman Sachs, the bank most would label as an equity underwriting powerhouse has fallen nine places. While still within the top 10 at number 10, it was at the top of the league table a year ago.
Arch-rival UBS is 10 places below Goldman ranked number 20 compared with its number 2 ranking a year ago. Credit Suisse, despite pivoting its investment banking to serve its rich ultra-high net worth clients, stands at number 18 compared with number 5 a year ago. J.P. Morgan, don’t show Jamie Dimon, is at number 28 (number 6 previously), two places ahead of last year’s dark horse, HSBC.
It is not all bad news for the international banks. You still have the steady Morgan Stanley, which is ranked second, ahead of its number 4 ranking a year ago. And then there is Citi, not usually known for its equity prowess, which is ranked number 6, an improvement from its 10th place position a year ago.
A decade ago, only two Asian banks are featured in the top-10 for equity underwriting, CICC and Bank of China. Today, only three international banks occupy the top-10 ranking alongside the likes of Citic Securities, Guotai Junan Securities, Southwest Securities, CICC, China Securities, GF Securities and Essence Securities.
This trend started a few years ago and 2016 is no exception. Seven of the top-10 initial public offerings (IPO) this year are from China or China-related. The largest IPO so far this year is the US$1.9 billion listing for China Zheshang Bank in March 2016; the next largest is the May 2016 listing of BOC Aviation, which raised US$1.1 billion and followed by the Bank of Jiangsu, which raised US$1 billion in June 2016.
As with China IPOs these days, every deal attracts more than a handful of Chinese underwriters that jockey for recognition next to their international rivals. China Zheshang Bank had nine bookrunners; Bank of Tianjin, which was listed in March 2016 and raised US$990 million, had eight bookrunners; while China Development Bank Financial Leasing Co, which raised US$810 million in June 2016, had 13 bookrunners.
Away from China, the two notable IPOs during the first six months of the year were the US$536 million offering by Cemex Holdings Philippines arranged by Citi, HSBC and J.P. Morgan, the largest IPO over the past three years; and the US$493 million IPO for Manulife US Real Estate Investment Trust in Singapore jointly led by DBS Bank, Credit Suisse, Deutsche Bank and CICC.
The most anticipated deal in 2016 is the proposed listing of China Postal Savings Bank, which is looking to raise from US$7 billion to US$10 billion later this year. It will be the largest IPO since the listing of Alibaba in September 2014, which raised US$25 billion. The banks associated with this deal? Bank of America Merrill Lynch, CICC, Goldman Sachs, J.P. Morgan, Morgan Stanley and UBS. Expect the year-end league table rankings to shift accordingly.
Incidentally, the number of bookrunners in an IPO does not guarantee the quality of the deal. The CDB Financial Leasing deal posted the worst opening-day performance in three years dropping by 7%, according to data from Bloomberg. This was despite the shares being priced at the lower end of the marketing range.
It is yet another reason why arrangers’ league tables, once the basis to assess which banks are the best, are becoming harder to read. The Asset, which conducts its annual review of investment banks’ performance, includes league-table rankings, but in addition to a review of each deal in terms of the marketing approach, pricing, allocation/distribution and how it performed in the aftermarket.
The nominations for The Asset Triple A Country Awards 2016 for the best banks are now open. If you are interested to participate, please click here.
