rapid rise of local investment banks in emerging markets is making life harder for global banks trying to prop up crisis-struck revenues by tapping into the booming economies.
Emerging market banks mar global peers' hopes
Reuters, Monday July 21 2008 By Olesya Dmitracova
LONDON, July 21 (Reuters) - The rapid rise of local investment banks in emerging markets is making life harder for global banks trying to prop up crisis-struck revenues by tapping into the booming economies.
Western bulge-bracket banks are increasingly fighting over mandates with local bankers, while at the same time finding it harder retain top staff than their upstart rivals, which have escaped the credit crisis largely unscathed.
"I do believe that the emerging markets banks' business comes at a detriment of global banks' business," said Patrick Vosgimorukian, who heads investment banking in central Asia and Caucasus at Russia's Renaissance Capital.
Investors are turning more cautious about emerging economies, recent data showed, and are putting their money in developed countries after steep falls in equity markets. Still, emerging market investment banks are climbing fast.
There were only two local banks in the top 20 of mergers and acquisitions advisers in emerging markets last year, but there are now seven, according to Thomson Reuters volume data for 2008 to date.
Likewise, for equity issues such as initial public offerings and rights issues, the number has edged up to 10 from nine last year, and for bond issues to three from two.
China International Capital Co entered the top 10 of M&A advisers in emerging markets, having not made it even into the top 20 last year. In equity issuance, China's CITIC moved up to the fifth spot this year from the ninth place in 2007.
HIRING SPREE
Emerging market banks are also hiring the bankers and entire teams from their larger rivals in the West, which are laying off staff as the credit crisis causes huge losses.
Russia's VTB has lured a string of bankers from large Western banks this year to its investment banking arm, including Viktor Makshantsev, who was a senior real estate banker at Deutsche Bank, and star analyst Alexei Yakovitsky, also from Deutsche.
Russian-based Troika Dialog said this month it had recruited Nick Harwood, previously Citigroup's head of equities for central and eastern Europe, the Middle East and Africa, alongside further hires from bulge-bracket banks.
"It would make sense for (Western banks) to worry as ... local players are becoming stronger and stronger and they are also becoming an alternative to these global banks which have suffered quite a lot," a senior investment banker at a global bank said, asking not to be named.
"It's easier to poach staff from (Western) investment banks now than it was in the past," he added.
Local banks also benefit from rising investment flows within emerging markets, as opposed to flows from the West, Renaissance Capital's Vosgimorukian said.
"You are less likely to capture those if you are based in London," he added, citing examples of Middle Eastern, Russian or Chinese companies looking to buy assets in central Asia.
The ratio of transactions involving North American or western European buyers or sellers to those involving only emerging markets parties was 2 to 1 in 2000, according to Renaissance Capital estimates.
By the end of 2007, the ratio, looking at M&A deals in central and eastern Europe and the Commonwealth of Independent States, was nearly 1 to 1.
"I would expect the dominance to be reversed in favour of emerging market flows by 2009," Vosgimorukian said.
In 2007, all banks in Brazil, Russia, India and China raised their share of global banking market capitalisation to 19 percent from 11 percent while North American banks retreated, according to a study by the Boston Consulting Group.
The day when emerging market banks dominate their regions may still be far off, but global banks operating on the same turf are feeling their growing presence.
Judging by the timeline Kazakh bank BTA has set itself, the birth of the first global bank from an emerging market may be less than 20 years away.
"BTA will be a global financial group, among Citi, HSBC and Unicredit," board chairman Mukhtar Ablyazov said this month.
See also: ANALYSIS-Investors quit emerging markets
(Editing by Douwe Miedema, Paul Bolding) |
