Asia volatility drives global investment banks

China's frothy equities markets have buoyed investment banks' Asian divisions, with the volatility driving up first quarter revenues for the region's big players.

This week Goldman Sachs, JPMorgan and Morgan Stanley filed quarterly reports with the US Securities and Exchange Commission, highlighting the growing importance of a region that is often skipped over in many institutions' initial presentations.

The rallying markets have helped mask a slump in core activities such as deal making and raising capital. These revenues fell from $3.5bn in first quarter of 2014 to $2.4bn this year, according to Dealogic, giving the sector its worst start to the year since 2009.

However, bankers remain optimistic that core business will pick up as the year progresses, with dealmakers and equity market specialists reporting strong deal pipelines.

Banks globally have recently benefited from higher market volatility, but their Asian operations were lifted further by local factors including China's soaring stock markets - now spilling into Hong Kong - and strong investor interest in "block" trades where banks help shareholders sell large holdings in a single sale.

Goldman's filing this week showed its total Asia revenues leapt 56 per cent to $1.86bn - contributing 18 per cent of the group's revenues, up from 13 per cent this time last year. The bank however declined to give any further breakdown of its operations.

Morgan Stanley's Asian revenues jumped 23 per cent to $1.22bn, beating a global 10 per cent improvement, while JPMorgan's corporate and investment banking revenues rose 21 per cent to $1.26bn.

Asia is still considered one of the industry's best growth hopes in spite of generally slowing rates of growth, but banks are divided on how make best use of the opportunity in a post-crisis era of heavy regulation.

In addition to global regulatory clampdowns, banks' operations in the region have come under US scrutiny over the hiring of princelings - the family members of influential figures in the Chinese government and elite. Several banks have reshuffled their senior China ranks as the probes, led by the Department of Justice, progress.

Last year, JP Morgan's head of investment banking in China, Fang Fang, left the bank. He has not been accused of any wrongdoing.

Revenues in the region are still dwarfed by those from the US and Europe, producing just $2.4bn of the $15.8bn in investment banking fees raked in globally in the first quarter - of which more than half came from the US.

As a rule of thumb, senior bankers reckon the top three investment banks in the region are profitable and the next three may break even.

Citigroup is yet to file its report with the SEC but its total Asian operations including its consumer and commercial banking units, produced $3.3bn in revenue, according to an internal memo seen by the Financial Times. Of that its institutional client group - roughly, investment banking - produced $1.7bn, up 12 per cent year-on-year.

Stephen Bird, the bank's outgoing chief executive for the region, told staff the gains were due to a "standout performance" in its market businesses, including several record days for client activity, helped by the opening of the "stock connect" trading link between Shanghai and Hong Kong. Asia is the bank's biggest profits contributor outside of the US.

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