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.
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