India overtakes China in merger and acquisition fees for Western banks for the first time

The world’s largest investment banks will earn more on deal-making fees in India this year than they do in China, a first that financiers describe as a historic reorientation as it diversifies away from China’s disconnected economy.

Foreign banks have withdrawn $231 million in M&A fees from India so far this year, according to Dealogic, surpassing the $204 million made in China over the same period.

JPMorgan is among those to earn more from M&A in India than in China this year for the first time, according to two people familiar with the bank’s position. JPMorgan declined to comment.

Yields in China’s stock and bond markets, long one of the biggest sources of fees for US and European financial institutions in Asia, fell in 2022 as mainland China shut itself down during the pandemic and increasingly favored local banks.

Although deal activity is expected to expand as China now reopens, Wall Street bankers have warned that the prolonged shutdown has seen more Chinese firms turn to local banks for advisory work in the future.

Underlying revenues for foreign investment banks — including capital markets and bonds as well as mergers and acquisitions — are down 70 percent to $602 million year-to-date compared to 2021, according to data from Dealogic. This follows a 15 percent drop in the previous year.

The trend reinforces how the decoupling of trade, investment, and technology between the United States and China affects capital markets. While India is still a small part of the revenue China has historically earned for global investment banks, the numbers point to a broader shift by Western finance to find opportunities and growth in other markets.

“The evolution of the banking portfolio there with the growth of technology, along with Indian corporate giants becoming more active,” said Jan Metzger, Citi’s head of banking, capital markets and advisory in Asia. in 2022.”

He added, “We expect that to continue in the coming years with the pipeline [in India]One of our largest companies.

The Singapore-based head of Asian investment banking at a US bank described it as “a fundamental change and I think it’s being permanently repositioned by Wall Street. If you believe me [Chinese president] Xi Jinping is bent on building his economic sphere of influence, while the United States shows no sign of stopping its crackdown on China. Where to go in the region? “

India has been a global anomaly for M&A activity this year, even as inflation and recession fears have forced some of the biggest declines in deal-making elsewhere since the financial crisis. M&A activity in India rose 58 percent year-on-year to an all-time high of $148 billion in the first nine months of 2022, according to a report by data provider Refinitiv. Much of that came from the $40 billion merger between HDFC Bank, India’s third-largest listed company by market capitalization, and Housing Development Finance Corporation, a leading mortgage provider.

Bankers also said the shift in the type of Indian companies participating in their initial public offering and share issuance business was pivotal. When many of India’s largest listed companies were privatizations of state-owned assets, the fees were relatively low. Now that the balance has shifted to private companies, the business is significantly more profitable.

The transformation of the banking industry follows a similar dynamic in India’s technology sector last year, when many investment dollars were transferred from China to India. For every dollar invested in Chinese tech, $1.50 went to India in 2021, according to the Asian Venture Capital Journal, though slower growth and higher interest rates this year have helped dampen inflated valuations and some of the market frenzy.

India can be unpredictable and foreign business has certainly been burned [there] Before. But you can no longer keep all your eggs in one basket like China, especially as supply chains and economies are separating,” said an asset manager whose office is growing in India, who did not want to be named because he still has clients and business in mainland China.

Additional reporting by Chloe Cornish in Mumbai

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