Banks hike fees as companies scramble to raise funds
Rush to tap capital driven by need to cut debt, refinance maturing loans
Reuters 6 February 2009
A flurry of companies looking to raise money through stock or bond sales is giving badly battered investment banks a welcome break - higher fees.
Institutions from Australia shopping mall owner Westfield Group to Korea Development Bank are scrambling to raise money to shore up balance sheets as global financial markets show signs of stabilising after one of the worst years ever.
The rush to market in Asia is allowing financial advisers to charge higher fees on the deals, and giving global investment banks a glimmer of hope as they continue to cut staff and scale back operations in the face of massive credit losses at home.
‘The funding environment is so radically different today to a few years ago, that even though (raising) capital is very expensive, I am not sure there are too many alternatives,’ Frank Villante, chief investment officer at Souls Funds Management in Australia, which oversees about A$500 million (S$485 million) in assets.
‘The banks will probably continue to milk people as well. I don’t think the environment is going to change that quickly.’
Korea Development Bank and Export-Import Bank of Korea last month each paid 50 basis points in fees on a deal to raise US$2 billion, far above 10-15 basis point fees they paid last year. The gross proceeds for each of the five banks that worked on those transactions amounts to US$2 million.
In Australia, fees for share placements over the past six to 12 months have risen by about one percentage point to 2-2.5 per cent, and up to 3 per cent from 2 per cent for rights issues, bankers say. Some cash- strapped companies in more dire situations have been charged as high as 4 per cent.
The thirst to raise capital despite the most difficult market conditions in decades is being driven in many cases by the need to reduce debt or refinance maturing debt.
Western banks have cut back lending in Asia and Australia amid heavy losses from the financial crisis, making it harder for companies to find funds, while regional banks are feeling the pinch from sharply slowing economies.
Expectations that the US and European governments will issue trillions of dollars of debt to fund massive economic stimulus plans have added to the sense of urgency.
Investor appetite for risk appears to be slowly recovering, but demand remains fragile as global economic conditions worsen. Firms which wait too late to raise money may find themselves shut out of markets again, and in weaker shape than before.
‘There is an element of mad scramble, there is an element of we have to do it and if we don’t do it someone else will do it fairly quick,’ said Mr. Villante.
Higher fees on such deals are helping investment banks to partly offset a sharp drop in revenue from initial public stock offerings and merger and acquisition activity - traditionally big sources of income for these banks.
Banks such as UBS, Goldman Sachs, JPMorgan, Credit Suisse and Morgan Stanley were among the biggest fee earners in Asia last year.
‘Issuers don’t have the time to shop around, secondly there are fewer banks to shop around to, and thirdly when they can push fees up, they are, because business in other areas has gone down,’ said one banker at a corporate advisory firm.
Bankers say the increase in fees must be seen in the context of low fees that were traditionally paid in Asia, compared with more developed markets, as banks had put priority on winning long-term business relationships in the region. ‘You were getting paid peanuts before,’ said one veteran debt investment banker.
‘Luckily, issuers are recognising that deals are a lot more challenging and fees have gone up materially to make these deals work,’ he said. Investment banking fees in Asia-Pacific excluding Japan fell 5.4 per cent to US$2.1 billion last year from 2007, according to Thomson Reuters data.
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Banks hike fees as companies scramble to raise funds
Rush to tap capital driven by need to cut debt, refinance maturing loans
Reuters
6 February 2009
A flurry of companies looking to raise money through stock or bond sales is giving badly battered investment banks a welcome break - higher fees.
Institutions from Australia shopping mall owner Westfield Group to Korea Development Bank are scrambling to raise money to shore up balance sheets as global financial markets show signs of stabilising after one of the worst years ever.
The rush to market in Asia is allowing financial advisers to charge higher fees on the deals, and giving global investment banks a glimmer of hope as they continue to cut staff and scale back operations in the face of massive credit losses at home.
‘The funding environment is so radically different today to a few years ago, that even though (raising) capital is very expensive, I am not sure there are too many alternatives,’ Frank Villante, chief investment officer at Souls Funds Management in Australia, which oversees about A$500 million (S$485 million) in assets.
‘The banks will probably continue to milk people as well. I don’t think the environment is going to change that quickly.’
Korea Development Bank and Export-Import Bank of Korea last month each paid 50 basis points in fees on a deal to raise US$2 billion, far above 10-15 basis point fees they paid last year. The gross proceeds for each of the five banks that worked on those transactions amounts to US$2 million.
In Australia, fees for share placements over the past six to 12 months have risen by about one percentage point to 2-2.5 per cent, and up to 3 per cent from 2 per cent for rights issues, bankers say. Some cash- strapped companies in more dire situations have been charged as high as 4 per cent.
The thirst to raise capital despite the most difficult market conditions in decades is being driven in many cases by the need to reduce debt or refinance maturing debt.
Western banks have cut back lending in Asia and Australia amid heavy losses from the financial crisis, making it harder for companies to find funds, while regional banks are feeling the pinch from sharply slowing economies.
Expectations that the US and European governments will issue trillions of dollars of debt to fund massive economic stimulus plans have added to the sense of urgency.
Investor appetite for risk appears to be slowly recovering, but demand remains fragile as global economic conditions worsen. Firms which wait too late to raise money may find themselves shut out of markets again, and in weaker shape than before.
‘There is an element of mad scramble, there is an element of we have to do it and if we don’t do it someone else will do it fairly quick,’ said Mr. Villante.
Higher fees on such deals are helping investment banks to partly offset a sharp drop in revenue from initial public stock offerings and merger and acquisition activity - traditionally big sources of income for these banks.
Banks such as UBS, Goldman Sachs, JPMorgan, Credit Suisse and Morgan Stanley were among the biggest fee earners in Asia last year.
‘Issuers don’t have the time to shop around, secondly there are fewer banks to shop around to, and thirdly when they can push fees up, they are, because business in other areas has gone down,’ said one banker at a corporate advisory firm.
Bankers say the increase in fees must be seen in the context of low fees that were traditionally paid in Asia, compared with more developed markets, as banks had put priority on winning long-term business relationships in the region. ‘You were getting paid peanuts before,’ said one veteran debt investment banker.
‘Luckily, issuers are recognising that deals are a lot more challenging and fees have gone up materially to make these deals work,’ he said. Investment banking fees in Asia-Pacific excluding Japan fell 5.4 per cent to US$2.1 billion last year from 2007, according to Thomson Reuters data.
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