The heydays for investment bankers are certainly over for now. With the economic slowdown engulfing corporates globally and causing a substantial decrease in fund-raising activity, investment bankers have seen their fees from this segment shrink by 64 per cent in the first quarter of calendar year 2009, from what they had earned in the same period last year.
According to data from Thomson Reuters, India's investment banking fees amounted to just $103.3 mn from 299 deals, compared with $291.4 mn from 447 issues during the same period last year.
Equity capital market (ECM) transactions declined the most, receding by a whopping 99.8 per cent in the period under review. Secondary markets have corrected by almost 60 per cent from their peak levels, discouraging companies from using the equity route as a fund-raising option. As a result, all types of equity-linked transactions – such as IPOs, follow-on offers, rights issues and qualified institutional placements (QIPs) – witnessed a slowdown.
In Asia too, investment banking fees fell sharply by 28.4 per cent. Loans were hit the most with a 35.6 per cent decline. Debt capital market (DCM) was the only deal segment to experience an increase in fees, posting a gain of 48.8 per cent over the same quarter last year .
State Bank of India was the top fee earner, garnering 99.89 per cent of its fees from the loan market. JM Financial was ranked second, followed by Morgan Stanley, Axis Bank and Kotak Mahindra Bank.
Debt transactions contributed 37.8 per cent to Axis Bank's fees, while mergers and acquisitions (M&As) were the major contributors with 99 per cent to JM Financial's fees.
Boutique investment banks, such as Ashika Stock Broking, Keynote Corporate Services and Silverdale Services, figured in the top ten ECM league table compiled by Thomson Reuters. They did only two deals in the first quarter of this calendar year.
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"Most of the companies are currently in a consolidation phase. Deals are not happening because financing has become difficult. Therefore, companies are re-looking at their strategies and operations. Also, there is a huge valuation mismatch between a buyer and a seller," said an investment banker.
"Debt will be the preferred mode of funding for companies going forward in 2009 and these transactions will be main contributors for investment banking revenues," he added.