How much do U.S. investment banks really care about Asia?
Remember the aftermath of the financial crisis when US banks were earmarking Asia to help lead their global recoveries?
These days – while US banks aren’t axing Asian jobs to the same extent as Barclays and Standard Chartered – there’s a noticeable lack of bullish rhetoric about the region coming out of the big banks. This is what Morgan Stanley, J.P. Morgan and Citi had to say about the region in their latest results. Goldman Sachs remained tight-lipped.
Morgan Stanley: Asia still a driver
It’s becoming a bit of a trend of late: banks label something in Asia as ‘non-core’ (equity trading and private banking at Barclays, for example) and then promptly cut it back. Jon Pruzan, CFO at Morgan Stanley, said the firm is aiming for a “smaller footprint, less capital, less expenses and better margin”. And his global list of functions that the bank is “getting out of” included Asia distressed trading.
Meanwhile, although Morgan Stanley suffered a “negative $235m” third-quarter accrual in Asia private equity, Q4 figures saw a $100m return. Pruzan said he was hopeful that the numbers had stabilised. “Clients are cautious, whether that’s a floor or not is hard to tell given the volatility.”
And in overall terms Pruzan gave this (fairly) upbeat take on Morgan Stanley’s Asian growth prospects: “I think the results this quarter, we did see Asia was down, but it continues to be a strong and important part of our business...we still think that Europe although showing some signs of growth in certain areas, is going to be a fragile economy and the drivers of our business will be the US and Asia.”
J.P. Morgan: building in prime brokerage
J.P. Morgan in Asia appears intent on capturing market share (and talent?) from its rivals in Asia. Marianne Lake, CFO of J.P. Morgan, had this to say when asked about the bank’s prime brokerage business: “In Asia we're adding clients. We've got the wind to our backs. So it's an important business to our clients ...there are some other people potentially not going to be as aggressive and if we can take share, we certainly will.”
Unsurprisingly, Lake noted “lower deal flow” in Asia equities in 2015 “compared to a strong prior year”, although J.P. Morgan is not among the many banks making major redundancies in this area. She was more upbeat on equity capital markets (ECM) in the region, pointing to a “resurgence of large transactions”.
Meanwhile, CEO Jamie Dimon chipped in on the conference call to say that people are “getting adjusted to China slowing down”. He added: “When you have commodity prices go down like that there are big winners and losers.”
Citi: upbeat despite compliance costs
Citi is a major player in Asian financial services, not just in investment banking. CFO John Gerspach took time on the earnings call to discuss a range of Asia-specific highlights and pointed out that Asia makes up 70% of Citi’s international consumer portfolio, despite a 4% year-on-year decline in consumer revenues. He mentioned “ongoing regulatory pressures” as one of the reasons for the fall, suggesting that Citi has been among the many banks forced to ramp up its Asian compliance ranks.
Gerspach also gave a brief and relatively optimistic outlook for Citi in Asia this year: “Asia and Latin America are going to be interesting [in 2016] and from a revenue perspective they both kind of have the same story, which is more of revenue stabilizing in the first half of the year. And then as volumes grow during the balance of the year, we'll begin to see then a sequential growth in revenue, which will get us then to year-over-year revenue growth in the latter part of 2016.”
Bank of America Merrill Lynch: slowing down
BAML’s earnings transcript doesn’t make any specific reference to Asia, but CEO Brian Moynihan does say that the firm’s growth outside the US is slowing (he would have presumably made it clear if Asia were bucking this trend).
Moynihan said: “...if you go back a couple of years we grew the international business because we had to round out that franchise. We sort of slowed that down. 24 months ago that started to drop in terms of growth rate, and so because of the client selection criteria there is [at] very high levels – very high clients, multinational clients etc – we slowed it down just to keep the company in balance...”
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