Europe’s Lost Decade in Equity Capital Markets

The top 10 holdings in the March quarter were Goldman Sachs, Morgan Stanley, BofA Securities, JPMorgan, Citi, Citic Securities, China Securities Co Ltd, China International Capital Corp Ltd, Jefferies LLC and Huatai Securities Co Ltd.

ECM leadership generally correlates with M&A leadership simply because both require strong connections to boards of directors.

Go back 10 years and it was commonplace that the world’s top 10 ECM book brokers’ league table included UBS, Credit Suisse, Deutsche Bank and Barclays.

The Europeans spent billions of dollars trying to match the power and reach of American investment banks. But they don’t have much to show for it.

The Chinese have come a long way in the last decade. In the March 2012 quarter, Citic Securities was ranked 17th in the global ECM book broker table, China Securities was ranked 26th, China International Capital Corp was ranked 37th, and Huatai Securities was ranked 67th.

Five years ago, in the March 2017 quarter, Citic ranked 10th, China Securities 14th, China International Corp 11th, and Huatai Securities 24th.

The top five Wall Street investment banks have consistently ranked in the top 10 ECM book brokers in the first quarters since 2012, according to data prepared by Dealogic for The Australian Financial Review.

One thing that helped Wall Street banks get ahead of their European competitors was their willingness to raise capital during the 2008-09 global financial crisis. Their European counterparts, such as UBS, Credit Suisse and Deutsche Bank, were slow to do so or avoided the problem altogether.

Strong balance sheets gave US investment banks an edge in ECM compared to European banks. It meant they were more agile and had a greater ability to take risks.

It also helps that your local market is the deepest and most active in the world.

Another factor contributing to the relatively poor performance of Europeans in investment banking is the shift in strategy towards wealth management and asset management, which was the natural response to increasingly strict regulation.

Wealth and asset management has lower capital costs and more predictable earnings.

UBS made around 52 per cent of its pre-tax profit from wealth and asset management in 2021. About a quarter of its profit came from investment banking.

Credit Suisse sent a strong signal about its investment banking ambitions on Wall Street last year, when it incurred a 1.6 billion Swiss franc ($2.3 billion) goodwill impairment in connection with its purchase of Donaldson, Lufkin. & Jenette in 2000.

Australia offers an exception to the general rule that, over the last decade, European investment banks have fallen into the dark.

Last year, the top 10 ECM book brokers in Australasia were Goldman Sachs, Macquarie Group, UBS, BofA Securities, Canaccord Genuity Corp, Morgan Stanley, Citi, JP Morgan, Barclays and Jarden Group.

In the first quarter of 2022, this leaderboard was inverted thanks to low volumes of ECM activity.

In the March quarter, the top 10 ECM book brokers were: Canaccord Genuity Corp, Petra Capital, BofA Securities, Goldman Sachs, Bell Potter Securities, Euroz Securities, Jefferies, Jarden Group, Barclays and EFG International.

The growing presence of Chinese broker-dealers in the list of the top 10 global ECM book brokers is not necessarily a reflection of their expansion in global markets.

It is their dominance of their home market that pushes them up the global league tables.

In the first quarter, the top 10 ECM book brokers in Asia-Pacific excluding Japan were Citic Securities, China Securities, Goldman Sachs, Morgan Stanley, China International Capital Corp, BofA Securities, Huatai Securities, Guotai Junan Securities, KB Financial Group and Citi.

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