Will 2017 see the “great ad­just­ment”?

Af­ter en­ter­ing a bleak for­est of slow growth and re­struc­tur­ing in 2016, in­vest­ment banks can look for­ward to a rel­a­tively brighter 2017 amidst a fin­tech-in­flu­enced, com­pli­ance-heavy en­vi­ron­ment.

Singapore Business Review - - FINANCIAL INSIGHT: INVESTMENT BANKING -

If in­vest­ment banks in Sin­ga­pore had a hard time cop­ing with the flurry of chal­lenges and changes in 2016, then 2017 will pro­vide a much-needed breather, es­pe­cially for banks that have started shap­ing up their op­er­a­tions. An­a­lysts fore­cast a thrilling year ahead marked by an im­prov­ing out­look as well as op­por­tu­ni­ties to col­lab­o­rate with fi­nan­cial tech­nol­ogy firms. Con­sol­i­da­tion, in­no­va­tion, and com­pli­ance will be the key themes in the com­ing months – and banks that fail to keep up will re­main lost in the woods.

“The win­ners in this en­vi­ron­ment will be in­vest­ment banks that re­struc­ture suc­cess­fully and de­velop a sharp fo­cus on the things they do best and em­brace in­no­va­tion,” says ASEAN man­ag­ing part­ner, fi­nan­cial ser­vices at Ernst & Young So­lu­tions LLP. Liew reck­ons that in­vest­ment banks in Sin­ga­pore face a slew of hur­dles that are driv­ing down re­turn on eq­uity (ROE). Not only is eco­nomic growth slow­ing, but rev­enue for fixed in­come, com­modi­ties, and cur­ren­cies is on the de­cline. Banks must also con­tend with new tax and com­pli­ance reg­u­la­tions that im­pose tougher penal­ties.

As a re­sult, ROE amongst in­vest­ment banks has de­clined in the past years, forc­ing some to re­struc­ture their busi­nesses. Liew says EY has been work­ing with in­vest­ment banks to re­struc­ture op­er­a­tions and im­ple­ment new mod­els to op­ti­mise busi­ness, tak­ing into con­sid­er­a­tion le­gal en­tity struc­tures and trans­fer pric­ing.

Liew Nam Soon,

“We have seen a lot of down­siz­ing in the past cou­ple of years for in­vest­ment bank­ing and I think that has res­onated across many fi­nan­cial in­sti­tu­tions,” says

Kim Kit, deputy head of bank­ing and fi­nance prac­tice, RHTLAW Tay­lor Wess­ing LLP. “The re­sult is that many se­nior level peo­ple have been dis­placed, most of them very ex­pe­ri­enced, hav­ing seen through sev­eral mar­ket cy­cles.” She reck­ons the wave of re­struc­tur­ing was a sur­vival ne­ces­sity, prepar­ing banks and other fi­nan­cial in­sti­tu­tions for the op­por­tu­ni­ties that will be com­ing this year.

2016 was some­what of an ‘an­nus hor­ri­bilis’ for the eq­uity teams of in­vest­ment banks in Sin­ga­pore.

As­sim­i­lat­ing into new cir­cum­stances Ow

“I saw the sec­ond half of 2016 as a time when in­vest­ment bank­ing play­ers re­grouped and built the back­drop for what may be a very ex­cit­ing 2017,” says Ow. “The mar­kets will as­sim­i­late into the new set of cir­cum­stances and a pos­i­tive out­look should soon emerge within the first quar­ter, bar­ring any se­vere and un­ex­pected sit­u­a­tions.” Ow be­lieves we are not likely to see that many mega deals but thinks we should ex­pect to at least see some rea­son­ably steady deal flow till at least early 2018.

She warns though that some banks may have gone too far in their re­struc­tur­ing. Those that im­ple­mented se­vere lay­offs may have let go of ex­pe­ri­enced ex­ec­u­tives and dis­solved busi­ness units that will be crit­i­cal to forth­com­ing deals. “If the in­vest­ment bank­ing sec­tor picks up in 2017, it may be that some of these fi­nan­cial in­sti­tu­tions would face

2017 is ex­pected to be a year of con­sol­i­da­tion

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