India Surpasses China for the First Time in M&A Fees for Western Banks

The world’s largest investment banks will earn more fees from deal-making in India than in China this year, with financiers describing this as a historic shift as they move away from the unstable Chinese economy for the first time.

Foreign banks have so far this year pulled in 231 million dollars from mergers and acquisitions (M&A) fees from India, surpassing the 204 million earned in China during the same period, according to Dealogic.

JPMorgan is among those that will earn more from mergers and acquisitions in India than in China for the first time this year, experts familiar with the bank’s position told the Financial Times. JPMorgan declined to comment.

Opportunities for Growth in Other Markets

Revenue from Chinese equity and bond markets, one of the largest sources of fees for U.S. and European financial firms in Asia, fell in 2022 as mainland China shut down during the pandemic and increasingly favored local banks.

While deal-making activity is expected to expand as China finally reopens, Wall Street bankers have warned that the long period of closure has pushed more Chinese companies to turn to domestic banks for advisory work in the future.

The core revenue of foreign investment banks, including equity and debt capital markets as well as mergers and acquisitions, fell to 70% (602 million dollars) this year compared to 2021, when it fell by 15%, according to Dealogic.

This trend confirms how the decoupling of trade, investment, and technology between the U.S. and China is affecting capital markets. Although India still represents a fraction of the revenue that China historically brings to global investment banks, the figures indicate a broader shift in Western finance towards finding opportunities and growth in other markets.

Jan Metzger, head of banking, capital markets, and advisory for Citi in Asia, stated that the ‘evolution of the local banking wallet with the development of technology, along with increased activity from established Indian corporate titans’ has made India ‘the leading investment banking market for Citi in 2022.’

– We expect this to continue in the coming years with the pipeline in India, one of the largest we have – he added.

The head of one U.S. bank’s Asian investment banking division based in Singapore described it as ‘a fundamental and I think permanent repositioning of Wall Street.’

– If you believe that Chinese President Xi Jinping intends to build his own sphere of economic influence, while the U.S. shows no sign of stopping its reckoning with China, where else to go in the region – he remarked.

In China, one dollar; in India, nearly two

India has been a global exception when it comes to mergers and acquisitions activity this year, although fears of inflation and recession have caused some of the largest declines in deal-making in other regions since the financial crisis. M&A activity in India rose 58% year-on-year to a record value of 148 billion dollars in the first nine months of 2022, according to data provider Refinitiv.

A significant portion of this came from the 40 billion dollars merger of HDFC Bank, the third-largest listed company in India by market capitalization, and its parent Housing Development Finance Corporation, a leading mortgage lender.

Bankers also noted that the change in the type of Indian companies that engaged them for initial public offerings and equity issuance was key. When many of the largest Indian listings were privatizations of state-owned assets, fees were relatively low. Now that the focus has shifted to private companies, the business is significantly more lucrative.

The change in the banking industry follows a similar dynamic in the Indian technology sector last year, when much investment capital was redirected from China to India. For every dollar invested in Chinese technology, $1.50 went to India in 2021, according to the Asian Venture Capital Journal, although slower growth and rising interest rates this year have helped reduce inflated valuations and some market frenzy.