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.
Reduced Lending
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.
“It’s not a question of whether the global firms will pull back, but can they afford the investment to be competitive with the regional players?” said Huw Jenkins, a former UBS investment-bank chief who’s now a managing partner of BTG Pactual in London. “The initial public offering of BTG and capital-raising by Citic Securities, together with the acquisitions that they have made, means that these firms have sufficient capital strength and global reach in terms of securities distribution of the global firms.”
Resources Repatriated
Western European banks, struggling to recover from the region’s sovereign-debt crisis, have seen their share of investment-banking fees slip as they reduce lending to emerging markets. The firms’ portion of syndicated lending commitments in Latin America dropped to 38 percent last year from 67 percent in 2008, according to Freeman. Their slice of fees fell to 31 percent from 45 percent in the same period, the data show.
Banks based in Western Europe also cut their portion of lending to the Middle East to 21 percent last year from 61 percent in 2005, coinciding with a decline in share of investment-banking fees in the region. Local firms, including Riyadh-based Banque Saudi Fransi, increased their portion of lending to 63 percent from 20 percent during the same period.
“The primary reason behind the retreat from emerging markets was the shortage of liquidity at the beginning of the crisis, which meant resources were repatriated to domestic markets and marginal overseas franchises were neglected and then sold,” said Simon Maughan, a banking strategist at Olivetree Securities Ltd. in London. “This was compounded by the creeping introduction of new capital rules that require higher weightings on emerging-market risks.”