China's rainmakers head for cover

Think of investment banking in its purest sense - the trusted adviser who has the ear of the chief executive or chairman and can use the resources of his or her company at a moment's notice for a favoured client.

Then think of China, where dealmaking is at record levels, and try and spot the equivalent of US bankers Bruce Wasserstein or Joseph Perella. The task is not easy. Rainmakers, where they do exist, have tended to keep a lower profile - and what profile they had is already fading.

Investment banking everywhere is under pressure in the light of post-financial crisis regulation and costs. But in China those strains are even greater.

Once, the Chinese investment banking business was about connections with a few key figures, preferably those running as-yet unlisted giant state-owned enterprises that could be brought to market with a splash. There was an expectation too that the resulting relationship would produce follow-on work including debt issuance and maybe some dealmaking and perhaps a spin-off listing or two.

Bankers who spent months in underheated offices in nowheresville, China - as was typical in preparing the first raft of state behemoths for flotation more than a decade ago - could reasonably expect to have built up a profitable rapport with that company's executives.

Now the challenges are greater: US regulators are probing the hiring process at banks with particularly well-connected Chinese employees and most of the biggest, juiciest SoEs are already listed. China's executives have also often proved unwilling to pay for advice and in some cases, to pay up at all, bankers say.

The country accounts for about a third of investment banking revenue in Asia, according to Dealogic - double its contribution five years ago - but profitability has not always kept pace.

Take China's reform of its state-owned enterprises. A series of mergers, spin-offs and listings are under way, with various banks winning league table credit for the work, but bankers admit that being mandated on a deal does not necessarily translate into fat fees.

Private Asian companies, another hope of bankers, are also proving tough to cosy up to. The most lucrative deal-hungry ones are usually labyrinthine with units that act virtually independently of each other and their chairmen are either elusive or happy to do deals without banks.

On top of all that bankers must divide fees for initial public offerings - reliably the biggest slice of the investment banking pie in Asia - among record-breaking numbers of rivals because of corporate China's fondness for hiring multiple advisers and playing them off each other.

Any party is thus truly over - even before including the damping effects on entertainment of Beijing's drive for official austerity. "It is hard work stomping around China for business these days," says Keith Pogson, head of Asia financial services at EY. "The game now is building a hard-working, germane army of competent bankers rather than having a few well-connected stars."

Banks still need bankers however, and the past months have witnessed a merry-go-round in the Chinese outposts of UBS, Deutsche Bank, Morgan Stanley, Bank of America Merrill Lynch, CICC, Citigroup and ANZ, among others. As elsewhere, Asia's bankers are prone to moving shop but the recent series of moves has been exceptional.

Among them, Alex To, a Morgan Stanley veteran and chairman of its China business, moved to BofA last year while CICC's investment banking head, Jiang Guorong, moved to UBS. Last month Catherine Cai moved from BofA to Citi as head of China investment banking.

Says one Asia dealmaker of the pass-the-parcel moves: "The pool of talent senior enough to call a chief executive or a chairman still isn't that deep."

Talent too is considering its options. Private equity has enticed many bankers and tech start-ups also appeal.

Yet banks still need a China business. The fee pool may fall far short of western levels - $1.7bn in the year to date compared with $11.3bn and $5.6bn in the US and Europe - but no investment bank can reasonably claim to be global without a strong presence there.

China's investment bankers may not be stars in the high-profile Wall Street sense, but if they can develop relationships and make money in the country's slippery banking climate, they deserve the title.

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