BETTING ON TECH: Goldman has been one of the top investment banks handling mergers and IPOs for the tech sector since the dot-com boom of the 1990s. But more recently, the bank has been trying to mould itself into a tech firm of sorts, too.
HONG KONG: Goldman Sachs failed to make it to the upper echelon of Asia's equity market fee earners for the first time in more than a decade, hit by a squeeze in fees that is prompting the US bank to cut back jobs in the region.
Goldman has shared dominance of the Asia-Pacific equity capital market arena with UBS and Morgan Stanley since clinching the mandate for China's first privatisation in 1997.
But increased competition from Chinese rivals and a dearth of the blockbuster deals it has previously relied on to make money in Asia are putting pressure on global investment banking powerhouses such as Goldman, quarterly Thomson Reuters data show.
"The value, the opportunity in the market has vaporised," said Keith Pogson, EY Asia Pacific financial services senior partner. "You cannot sustain a big-hitting team with seven-figure salaries if you are not going to hit the ball out of the stadium."
IPO activity in the Asia-Pacific fell 13.2% in the first nine months of the year to the weakest level since 2013.
While maintaining its leadership in terms of volumes in M&A advisory in the Asia-Pacific, excluding Japan, Goldman slipped to No. 4 in the equity capital market (ECM) Thomson Reuters league table in the first nine months of the year, from first in 2015.
The New York-based bank saw a 73% slump in the volume of the Asia-Pacific ECM deals it worked on, the sharpest fall among the top 10 equity underwriters in the region, closely followed by UBS with a 71% tumble.
China's CITIC Securities Co Ltd clinched the top slot in the ECM rankings, followed by Morgan Stanley and UBS.
In terms of fees, a key gauge of investment banks' revenue prospects, Goldman sank to No. 11, the first time it has been out of the top 10 rankings since at least 2000, earning an estimated US$83.8 million in the first nine months of this year, according to Thomson Reuters/Freeman & Co estimates.
CITIC Securities also topped the fee table in the period, pocketing an estimated US$216 million, followed by Morgan Stanley with US$195 million. Seven Chinese players, including GF Securities and Guotai Junan Securities, muscled into the top 10 group, while UBS receded to No. 8.
Reuters reported last week that Goldman was considering cutting nearly 30% of its investment bankers in Asia. Other investment banks may follow suit with staff reductions in the region, senior bankers said.
By moving first with the big job cuts, Goldman will however turn itself into a more nimble player and could keep its powder dry for when the market eventually rebounds.
"It's just a matter of prioritising and deciding where the revenues are going to be from, and in a way realigning or right-sizing the team accordingly," one person familiar with Goldman's Asia business told Reuters.
In the first six months of 2016, Goldman's revenues in Asia more than halved to US$1.7 billion. Its pre-tax earnings plunged 71% to US$404 million, accounting for 10% of global pre-tax profit from 25% a year ago, its filings showed.
SMALLER PIE
Equity capital market fee rankings are the most important benchmark for banks operating in Asia. But the pie for Western banks is getting smaller as they have limited access to a growing number of domestic listings in China and fees are increasingly divided up among an ever larger number of banks.
This week's listing of state-owned Postal Savings Bank of China in Hong Kong, at US$7.4 billion the world's biggest IPO in two years, involved 26 banks who earned a combined US$118.4 million, or 1.6%, in fees.
An average IPO in the United States would have earned 7% fees, with far fewer players involved, earning each of them a much larger revenue, according to consulting firm Freeman & Co.
The shrinking fee pool is more painful for global banks because there is regulatory pressure on them to deploy less of their own capital, which limits their ability to dabble in IPOs.
Damien Cleris, head of coverage and global transaction banking at France's Natixis, told Reuters his bank was focusing on select Asian markets such as M&A and financing, but not ECM.
"The volumes have decreased this year and as a result people are more aggressive in competing for the transactions. This is driving overall revenues down in Asia," said Claudio Lago de Lanzos, a partner with Oliver Wyman. "None of the relevant banks in the region are really thinking of exiting Asia, but they are really thinking hard about where to place resources." - Reuters
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