BREAKINGVIEWS-Asian investment banking is at an inflection point

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix typo in advisory.

By Una Galani

HONG KONG, Feb 3 (Reuters Breakingviews) - Investment banking is a daunting business in Asia Pacific. The regional bosses of some Wall Street giants liken their job to corralling a loose confederation of mercenaries, or battling a three-headed monster. Such are the challenges of running a sprawling geography full of first-time fee payers, with mixed levels of financial sophistication among clients. As activity rebounds, though, the region seems to be at a positive inflection point, with many of its major markets firing up at once.

Globally, the art of dealmaking is back. The world's top executives are eyeing big acquisitions as borrowing costs fall and the shock of U.S. President Donald Trump's trade war recedes. In Asia Pacific, total investment banking revenue across deal advice, equity and debt underwriting hit almost $17 billion in 2025, according to Dealogic. That was below 2021's $22 billion level but better than in the intervening years. Volumes so far in 2026 look set to outpace the peak four years ago.

The investment banking business in Asia has changed since the slump. While China and Australia once dominated the action for Western firms, tensions between Washington and Beijing killed off the most lucrative businesses: Chinese outbound acquisitions and U.S. listings by firms from the People's Republic. That was a space Goldman Sachs GS.N and Morgan Stanley MS.N dominated, thanks to their powerful technology-industry franchises among other things.

Today, the fees up for grabs are more broad-based. Chinese firms have a pent-up demand for capital, especially in the booming innovation economy spanning artificial intelligence, biotechnology and robotics. Down Under, miners are riding another mergers and acquisition boom: JPMorgan JPM.N is among the advisers to Rio Tinto RIO.L on its hoped-for Glencore GLEN.L deal, which would create by far the world's largest mining company worth more than $200 billion.

There's also a steady stream of sizable deals coming from historically quieter countries. Take India, where the debut of Jio in Mumbai will likely take the crown for the region's largest 2026 initial public offering. Bankers are hoping to win Mukesh Ambani's telecom giant a valuation as high as $170 billion. In Japan, meanwhile, corporate governance reforms have stirred up a domestic M&A boom, making the country a top destination for buyout barons, led by Bain Capital and KKR KKR.N.

Helped by these two markets, Citigroup C.N closed 2025 with its best revenues in Asian investment banking for over a decade. The U.S. firm, which is turning itself around under CEO Jane Fraser, advised on Nippon Steel's 5401.T acquisition of U.S. Steel, and won mandates when South Korean firms Hyundai 005380.KS and LG 003550.KS listed their Indian businesses in Mumbai. Morgan Stanley for the second year running generated the most fees in the region, encompassing M&A, equity and debt underwriting. Among Western banks, JPMorgan followed.

The locals are growing ever more powerful, however, with Chinese banks like CITIC Securities 600030.SS rising up the rankings because of their dominance in certain onshore businesses that global firms don't compete for. It means the real addressable market for Wall Street firms in Asia is probably around half the overall regional pie.

In equity underwriting, fee rates are compressing, instead of trending higher towards U.S. levels. As a percentage of total proceeds, revenue plunged from nearly 3% in 2000 to barely 1.5% in 2024, LSEG data shows. Bankers say fees on convertibles and block trades remain resilient. But Hong Kong IPO activity is also now dominated by secondary listings by firms whose shares already trade on mainland bourses. That's less demanding work, and so it pays less. Morgan Stanley Asia Pacific CEO Gokul Laroia admits the problem, though stabilising, is "pretty systemic".

Quirky brokerage fees have helped to cushion the blow for banks. Investors buying shares in Hong Kong IPOs pay 1% to firms handling stock sales. The charge was rarely talked about in the good times. It was introduced over 30 years ago when brokers owned the bourse that is now operated by Hong Kong Exchanges and Clearing. The fee is not enough to compensate for wider compression, though. CATL's Hong Kong offering paid a 0.9% fee and 1% brokerage, for example, turning a derisory sum into one that's still nothing to brag about.

Meanwhile, outbound Chinese acquisitions - including Zijin Mining's 2899.HK bid for Allied Gold - are likely to remain a trickle given political sensitivities in Europe and North America. And other cross-border deals, such as UK drugmaker AstraZeneca's AZN.L licensing of weight-loss drugs from China's CSPC 1093.HK, involve only small upfront payments, capping the reward for bankers. In India, tycoons and state companies remain stingy fee payers and insist on building incentives into remuneration for capital-market deals. These clauses, which include variable components paid out depending on which investors are brought to a deal, are time-consuming to negotiate. Banks that are picky about their clients are better off. Hexaware HEXW.NS, backed by U.S. private equity firm Carlyle, paid a 2.5% fee for its Mumbai IPO. By contrast, Reliance's mega offering will offer banks more prestige than pay.

The biggest shift is in Japan. High levels of private equity-led M&A mean the country is taking a bigger slice of regional fees. Here, Morgan Stanley is the envy of its peers. Its joint venture since 2008 with Mitsubishi UFJ Financial 8306.T, which connects the Japanese lender's clients to investment bankers worldwide, underpins the Wall Street giant's top regional position. It also gives the U.S. investment bank extra heft outside of Japan: the duo came together to provide a $4.5 billion bridge loan for Tata Motor's TAMO.NS acquisition of Italy's Iveco, for example.

Morgan Stanley's partnership was underestimated when it was formed as part of a capital call for the U.S. bank during the global financial crisis. Replicating it now looks tricky. So to compete in Japan, global firms are ramping up their headcount and expanding their coverage - especially for the middle market, where the bulk of buyouts happen. Goldman's decision last year to combine its investment banking businesses in Australia, Japan, and the rest of Asia into a single, unified regional unit underscores the shifting pressures and opportunities for the bank run by David Solomon.

Geopolitical tension between the U.S. and China is also reshaping fortunes. Washington is allowing U.S. banks a wide berth: Morgan Stanley and Goldman, for example, advised on the Hong Kong IPO of artificial intelligence startup MiniMax this year. But Chinese clients are being selective. If they opt to have any international advisers on deals, they increasingly insist on using at least one non-U.S. firm. That's a tailwind for Switzerland's UBS UBSG.S and Deutsche Bank DBKGn.DE.

Investment banking activity in Asia may be lifting off. But extracting fees won't be easy for Wall Street firms.

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CONTEXT NEWS

Asia Pacific core investment banking fees amounted to $16.5 billion in 2025, according to Dealogic. Core investment banking comprises equity capital markets, mergers and acquisitions and debt capital markets. It excludes loans. Fees peaked at a total of $21.8 billion in 2021.

(Editing by Liam Proud; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on GALANI/ una.galani@thomsonreuters.com))