This year has been tough for Asian investment banks, with a massive drop in initial public offerings (IPOs) in comparison to the rapid growth seen over the last several years. The Wall Street Journal reported that Hong Kong saw $5.76 billion in new IPOs through the first nine months of 2012, which is a 80 percent decline in activity year over year. The appetite for IPOs in one of the world’s leading equity markets is the lowest it’s been since 2003.
The decline in investment banking revenues overall has not been quite as dramatic, though proceeds are still off 14 percent from the same period last year. The decline in IPO revenue has been offset largely by other business lines. However, without an immediate recovery in equity markets broadly throughout the Asia region, investment banks will be facing difficult decisions in the coming months. The current rally seen in world markets has not been enough to completely right the ship in Asia, and uncertainties remain about just how long this bull market will be sustainable.
Other Areas of Investment Banking Remain Strong
While IPO related activity struggled through the first three quarters, the declining performance of Asian stocks actually boosted other areas of investment banking. This has helped to stabilize the industry somewhat in Asia, though it has not fully offset the losses in the IPO segment. Mergers and acquisitions as well as debt sales are areas that have seen considerable growth. Companies are both looking to acquire undervalued firms as well as reposition their balance sheets to take risk off the table.
Unfortunately, the fees earned in the debt business are generally less than what is seen in equity issuances and as a result, many firms are struggling. Even more troubling for those on IPO desks is that debt activities generally involve different skillsets that are not always easily transferable, putting their job security at risk.
Several firms have already begun transferring staff they wish to retain to other positions. The Wall Street Journal reported that Goldman undertook a major shuffle, shifting workers from the IPO desk to mergers and acquisitions, risk management and corporate debt sales.
What Does This Mean for Job Seekers?
The news from Asian investment banks isn’t entirely negative for those interested in perhaps gaining some international experience in the investment banking industry. While IPO activity has stalled, investment banks in Asia are experiencing rapid growth in corporate debt deals as well as mergers and acquisition transactions. Those with specific experience in these areas, with some knowledge of Asian markets, will be best positioned to take advantage of this trend. Language is a key advantage as well as banks attempt to find qualified people that can tap into local trends and deal flow.
However, it’s important to remember that a number of individuals are losing their jobs in the IPO side of the business, and these individuals generally have substantial experience in the unique markets of Asia. Opportunities will likely exist for the very best candidates, but until overall market tone improves across the board, it will be tough going in landing a position in investment banking.