Chinese banks grab bigger share of fee pool for international bonds

China’s investment banks are beginning to eat Goldman Sachs’ lunch.

Bank of China and its subsidiaries have earned, year to date, 4.2% of the fee pool from arranging international bonds for Asian issuers, according to data compiled by Thomson Reuters/Freeman Consulting. It was a record for the bank.

Meanwhile, Goldman Sachs grabbed 4.1% of the pool, half of what it earned five years ago.

Haitong Securities and Agricultural Bank of China have also won bigger slices of the pie than ever before. Over the past five years, as the Bank of China’s share nearly doubled, Haitong’s jumped from 0% to 2.4%, according to the Thomson Reuters/Freeman Consulting data. The data track underwriting fees on dollar, euro and yen bonds from Asia, excluding Japan and Australasia.

Being well connected in the community has given the Chinese banks a distinct advantage. In addition, they’ve expanded their infrastructure and staffs as foreign competitors cut costs.

The results are dramatic. In 2014, Chinese issuers sold $76 billion worth of bonds in G3 currencies, up from just $1 billion in 2009.

“Some of the (foreign firms’) weaknesses are their local connections, which are not as strong as Chinese banks,” Samson Lee, managing director and head of debt capital markets at BOC International, told IFR. “This is our home market.”

Bank of China has used its onshore connections to lock in senior standings in deals. The Thomson Reuters data said it served as joint global coordinator for 20 deals in 2014, up from 12 the year before. On top of that it was the sole global coordinator on seven deals last year, up from two in 2013. Even as more bonds are issued, as Chinese banks grab more of the fees, global players are feeling the competition. Reuters said market leader HSBC saw its 2014 share fall to 10.5% from 13.2% the previous year, while UBS fell to 5.8% from 9.6% in 2011.

“They’re not acting as underwriters, they’re really just acting as investors in a way,” a senior DCM banker at a U.S. bank told Reuters. “Obviously, it puts them in a very competitive position relative to the international banks. It could be very difficult to compete with them over time.”
Another foreign banker told Reuters: “If this activity becomes less and less disciplined, and they promise more and more, then they will genuinely have an impact in marginalizing international banks from the vanilla business.”



Categories: Asia Unhedged

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  • miguel gallardo

    I think it will be a war,