Following years of declining revenues in developed economies such as Europe and the United States, investment banks are beginning to see the trend continue to the once promising emerging markets segment. Lucrative fees in initial public offerings (IPO) and mergers are nowhere to be found, and instead, investment banks are left to focus on corporate debt and other lower margin business.
In a recent report, the Economic Times indicated that falling IPO proceeds are one of the leading drivers of lower investment banking revenues in emerging markets. From a high in 2007, where banker fees reached $6.5 billion, new listing fees have fallen substantially, totalling only $2.8 billion in 2012. The Economic Times cited Thomson Reuters as the source of the data.
BRIC Nations Hit Hardest by IPO Drought
After substantial optimism in emerging markets drove investment banks to build large presences in developing countries, the reality of the last several years is forcing some dramatic reconsideration. The BRIC nations, namely Brazil, Russia, India and China have in fact been the leading cause of the decline in IPO activity. Financing fees related to initial offerings declined two-thirds in 2012 from the previous year and are currently sitting at nine year lows. In fact, IPO revenues for investment banks are currently down 80 percent from their 2007 highs.
Shift to Lower Margin Activities Has Meant Cost Reductions
As investment banks are forced to refocus on lower margin activities, such as bond trading and corporate debt issuance, many institutions are facing substantial cost reduction initiatives. Needing to provide appropriate returns on equity in order to justify their risk, many large banks are looking at consolidating foreign offices and of course, the reduction of staff, to deliver better bottom line results.
According to the Economic Times report, Citi has already announced the termination of 11,000 jobs and the closure of offices in Turkey Uruguay and Romania. Credit Agricole, HSBC, UBS and Barclays are all following suit to some extent. For example, Barclays will be shutting down merger and acquisition advisory in Asia-Pacific, while Credit Suisse has closed the doors on its investment banking office in Moscow.
What Does This Mean for Investment Banking Job Seekers?
The outlook in developing and emerging markets is certainly not an optimistic one for investment banking job seekers. While this segment of the industry carried substantial promise through the initial cutbacks seen in conventional investment banking markets, foreign operations have not been able to weather the worsening economic climate that is prevailing in these countries. While investment banks will always have the need for experts in local economies and industries that are unfamiliar to most bankers, the opportunity is becoming more and more limited. Further reductions in staffing levels overseas will drive competition for the limited foreign positions available higher, with only the most qualified candidates having any shot at available opportunities. Establishing oneself as a knowledge leader in a specific locale or industry has never been more important for those seeking investment banking jobs in emerging markets.