Global investment banks based in Europe and the U.S., facing regulatory and cost-cutting pressures at home, are losing market share in emerging economies to smaller domestic competitors.
Credit Suisse Group AG, Morgan Stanley and Citigroup Inc. are among Western securities firms seeing the biggest erosion in some developing markets, according to data compiled by Freeman & Co., a New York-based consulting company. Their share of investment-banking fees is being diluted by local banks including Brazil’s Grupo BTG Pactual SA, Russia’s VTB Capital and China’s Citic Securities Co., the data show.
The share of fees for U.S. and Western European firms in Latin America, the Middle East, China, India, Russia and Eastern Europe plunged to 43 percent last year from 69 percent in 2005, according to Freeman. The shift coincides with a decline in lending by European banks in emerging markets, making it harder to compete for assignments, the data show.
“It’s always the case in banking -- as one set of players goes off the pitch because they’re injured, you get another set of players who come on to try and play the same game,” said Paul Skelton, HSBC Holdings Plc’s Dubai-based regional co-head of global banking in the Middle East and North Africa. The rise of regional investment banks “has coincided with some of the international firms looking at this part of the world and asking themselves whether it makes sense.”
Stagnant revenue growth, job cuts and pressure to shrink quickly and curb compensation have weighed down banks based in London, Zurich and New York. U.S. and Western European firms’ share of emerging-market fees has been less than 44 percent in each of the past three years, after never dropping below 59 percent in the decade ended in 2007, according to Freeman data that goes back to 1998.
Counterparts in developing economies have gone public to fund expansion, hired bankers from larger firms and exploited contacts with governments and companies on their home turf.
Banco Itau BBA SA, which handles the investment-banking business of Sao Paulo-based Itau Unibanco Holding SA, has hired financiers from Credit Suisse and UBS AG and is considering expanding into Mexico, said Candido Botelho Bracher, chief executive officer of the division. Itau BBA transferred its European operations to London from Lisbon to improve distribution of Brazilian shares and bonds, he said.
VTB Capital, the securities arm of VTB Group, Russia’s second-largest lender, added 100 bankers last year and expanded in New York, Eastern Europe and Asia, the company said.
The push by local firms occurred as ING Groep NV, the biggest Dutch lender, closed its Russian equities unit, and Milan-based UniCredit SpA announced it would shut its securities operation in the country. Credit Suisse, Switzerland’s second- largest bank, is moving its Russian capital-markets and advisory businesses to London to cut costs, two people with knowledge of the matter said.
“The biggest financiers in the emerging markets had been European banks, who are now retreating given their capital and funding constraints,” said Eric Wasserstrom, an analyst at SunTrust Robinson Humphrey Inc. in New York. “That’s creating an opening. Local players, who had been shut out because they didn’t have all the resources and capabilities necessary, are filling that opening.”
Even as their market share shrinks, Wall Street and European banks are competing for a diminished pool of fees from arranging mergers, stock and bond sales and loans in developing economies. Investment-banking fees derived from emerging markets fell 20 percent in 2012 to $9.8 billion from a year earlier, compared with a 2 percent increase to $73.2 billion in developed nations, including the U.S. and Canada, the data show.
Morgan Stanley, Citigroup, UBS, Credit Suisse and JPMorgan Chase & Co. each have seen combined fees from emerging economies fall by at least 50 percent from their peaks, driven by market- share losses and a decline in dealmaking, according to Freeman.