China is new 'Axis of Power' for investment banking

Updated: 2010-07-07 16:39
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Global investment banking fee income more than doubled in the Chinese mainland and Hong Kong in the first half of the year, as the "axis of power" shifted from western Europe.

Securities firms' earnings more than doubled to $2.3 billion in the Chinese mainland and Hong Kong from January to June compared with the same period of 2009, according to a report by New York-based research firm Freeman & Co. East European fee income also doubled to $1.18 billion, while western Europe fell by 23 percent to $8.83 billion.

"The axis of power, as defined by the companies paying the fees to the bankers, is shifting east within Europe and even further east globally," said Scott Moeller, finance professor at Cass Business School in London. "There can't be a group of professionals more mobile than investment bankers, excepting perhaps airline pilots."

The Chinese mainland, whose stocks are among the worst performers globally so far in 2010, took three of the top 10 global IPO spots.

That excludes the July IPO of the Agricultural Bank of China, which aims to raise up to $24.5 billion including overallotments, making it the largest IPO ever if it hits that target.

Among the first half mainland deals were mid-sized brokerage Huatai Securities, fetching $2.3 billion. And China First Heavy Industries, the mainland's biggest heavy equipment maker, raising $1.7 billion.

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JPMorgan Chase & Co is among firms continuing to expand into the mainland, the world's largest market for initial public offerings in 2009, to compete with rivals including Goldman Sachs Group Inc. and UBS AG. Shares of companies that went public in Shanghai and Shenzhen gained an average 29 percent in their first month of trading, Bloomberg data shows.

Overall, worldwide fee income rose 7 percent in the first half to $37.1 billion. The Americas was the biggest region for investment banking fee income, recording a 17 percent rise to $18.63 billion, Freeman said.

Eastern Europe and the former Soviet republics posted the second-largest gains in fee income, Freeman said. Fees soared as countries including Poland embarked on government asset sales valued at about $10 billion.

In western Europe, the collapse of Prudential Plc's $35.5 billion bid for American International Group Inc's AIA unit led to a decline in transactions in the UK, while mining acquisitions in Australia tumbled to a more than a four-year low in the quarter after a proposal to tax the resources industry. Fee income in Australasia fell 37 percent to $829 million.