As you may have read on this site earlier this week, JP Morgan has published its global investment bank tracker, in which its analysts predict the banks that are likely to reveal the best and worst performances globally for the first quarter. While the report didn’t make many references to Asia, it did address a few regional concerns.
At a macro level, regardless of the bank, JP Morgan’s report suggests that there is still no light at the end of the tunnel for equities teams in Hong Kong. Equities cash transaction volumes in Q1 have been weak “especially in Asia”, according to JPM. There has also been "weaker structured product issuance in Asia". A bad Q1 piles more pressure on traders, who generally also endured a torrid fourth quarter. Equities revenues at Credit Suisse, for example, fell 28% in Q4.
But hold on: hasn’t the Shanghai stock market surged more than 27% in 2019, making it the best performer of major markets globally? Yes, says JPM, but Shanghai is “less relevant” to global investment banks than Hong Kong is, and the Hong Kong market is down 35% year on year. This is not good news if you work in Asian equities and are worried about your job security this year, or if you’ve recently been laid off and are looking for a new role. Nomura, for example, cut Asian equities staff just week while Deutsche Bank made dozens of redundancies last year.
The JP Morgan report has nothing to say about the Asia performance of individual banks, with the exception of Swiss rivals Credit Suisse and UBS. JPM notes the “Asia Pacific gearing” of Credit Suisse – CEO Tidjane Thiam has be pivoting the bank toward the region since his appointment in 2015 – but warns that “declining activity levels” for CS in Asia could affect its Q1 earnings in both investment banking and private banking.
Credit Suisse’s Advisory, Underwriting and Financing unit in Asia (i.e. the investment bank) would have been hoping for a rebound in Q1 after fourth quarter revenues fell 37% year on year – but the JPM predictions suggest otherwise. A Q1 fall in private banking revenue could have more of an impact on Credit Suisse’s bottom line in Asia. The Swiss firm’s Asia Pacific division is heavily dependent on the private bank, which contributed 53% of its revenues in Q4.
JPM’s analysts are – perhaps surprisingly – more bullish when it comes to UBS in Asia, although they provide scant regional detail. UBS is described as having a “top-ranked Asian business” and being the “world’s largest global wealth manager”. UBS has certainly taken an expansionist outlook in Asian wealth management, growing its team of relationship managers by 101 to 1,037 last year. Meanwhile, UBS’s investment bank now makes more money in Asia Pacific (30% of global IB profits) than it does in EMEA (25%), according to its 2018 Annual Report.
But UBS faces headwinds across its business in Asia, even in wealth management, where net new money was “adversely affected by client deleveraging in Asia Pacific”, according to its Q4 results. UBS’s CFO, Kirt Gardner, blamed Asia for a fall in Q4 equities trading revenue. And for the first quarter, UBS only ranked in sixth place for APAC (ex-Japan) IB revenue – two slots below Credit Suisse – according to Dealogic.
JPM’s “top ranked” tag may have more to do with UBS’s long-term ambitions in Asia, in particular China. In December, UBS became the first foreign bank to take advantage of new Chinese regulations and secure a majority 51% stake in a mainland securities joint venture. Having control over the JV, UBS Securities China, now gives UBS a “great foothold for future expansion”, according to its annual report.
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Image credit: Getty, Robert Daly