China's crowded investment banking scene squeezes fees to five-year low

Average fees for equity deals fell to 3.9%.

Bloomberg reports that the cutthroat competition in China's investment banking landscape has intensified to the extent that five firms agreed to split a 0.001% fee for arranging the private share placement for Huaxia Bank as they bid to prop up struggling bottomlines where deals are hard to come by. 

In comparison, follow-on stock offerings on Wall Street offer more than 5% in fees as average fees for all equity deals in China have crashed to a five-year low of 3.9%, data from Bloomberg show. 

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Against an environment where 120 firms are scrambling to score high-ticket deals, investment bankers have no choice but to lower fees in order to nab the very few deals that are going around as China's equity market continues to shrink.  

“In three to five years, I will say 20 big, full-service brokers in China will be more than enough,” said David Yuan Wei, associate partner with McKinsey & Co.. “Smaller players need to find a niche market they specialise in and shift to boutique broker to survive.”

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And things are about to heat up even more as recent rule changes have paved the way for foreign securities firms to enter China and expand their local presence. 

“The pie for bankers was so small last year that they had no choice but to fight for a mandate at any cost,” said Bifan Shen, chief strategist at Shenzhen Spruces Capital Management Co. “Conditions may improve a little, but only the top-tier banks will benefit from a bigger pie; smaller players may still have to pitch deals at a bargain.”

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