Investment bankers at Goldman Sachs in Hong Kong and Singapore may want to consign the quarter just gone to a hidden corner of their minds.
Goldman’s Asian revenues came to $1,053m in Q3, its worst quarterly performance since it began publishing regional figures back it in Q3 2017. The quarter was also down 13% year on year, and was 32% below Goldman’s peak (published) Asian revenues of $1,549m, which it achieved in Q1 last year.
What explains the fall? As always, Goldman’s quarterly financial report says nothing about its Asian business apart from providing the raw revenue numbers. But new figures from Dealogic suggest the blame lies with parts of its investment bank in ex-Japan Asia.
Goldman fell from first to seventh position year-on-year for IB revenues in that region in the first nine months of 2019, below CITIC, Credit Suisse, China Securities, Morgan Stanley, JP Morgan, and CICC, according to the data provider. More specifically, Goldman lost its number-one position in ECM (it’s now third), and currently ranks outside the top-10 banks for 9M DCM revenue. In M&A, however, Goldman has retained its top ranking for Asia ex-Japan revenues.
The bank’s Asian earnings and league table positions are far from disastrous and they come at a difficult time generally for the Asian investment banking sector. Overall Asia (ex-Japan) M&A and ECM volumes for the first nine months fell 21% and 20%, respectively, according to new year-on-year figures from Refinitiv. However, Goldman’s recent performance does suggest that it has at best been treading water in Asia. Goldman faces increasing competition from Chinese banks that now dominate DCM deal making and are a growing force in ECM. Meanwhile, Western rivals such as UBS and JP Morgan have received Chinese regulatory approval for majority-controlled securities joint ventures that will help them expand on the mainland.
The size of Goldman’s Asian revenues was brought into perspective by another US bank that reported on Tuesday: Citi. While Goldman made $1,053m (13% of its global revenues) in Q3 in Asia, Citi generated $4,015 (22% of its global total, and a 6% year-on-year increase). This was not a one-off, as shown in the chart below, which compares Asian income at the two US firms stretching back to Q3 2017 when comparisons first became possible. Moreover, Citi reportedly now plans to set up a wholly-owned securities business in China next year, which may help to further cement its position as the largest US bank in Asia by revenue.
As the size of its results suggests, Citi is a universal bank in Asia, where it has some 50,000 staff across 16 markets. Citi’s global consumer banking unit employs people in stable cash-cow functions that Goldman has little or no Asian presence in (e.g. cards and retail banking).
Strip out consumer banking, however, and the figures tell a slightly different story. Citi’s other division in Asia, Institutional Clients Group (ICG), comprises corporate and investment banking, treasury and trade solutions, markets and securities services, and private banking – and it therefore competes in similar sectors to Goldman. ICG in Asia made $2,099m in the first quarter. That’s still a 99% increase over Goldman’s overall Asian total, but Citi is a whopping 281% ahead of GS when its entire regional Q3 revenues are included.
Image credit: Boris25, Getty
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