MUMBAI/HONG KONG (Reuters) – Two years ago, the head of Indian trading at a global investment bank lamented that, despite his support and the lure of much more money, few of his talented local staff were chasing jobs in New York or London.
Today, the decision to stay in Mumbai makes those traders look pretty shrewd, with salaries for top banking and trading specialists more than doubling as India's stock market and deal volumes soar.
That's good news for dealmakers, but bad news for banks, which are feeling the pinch as salaries approach levels seen in Hong Kong, but Indian deal fees remain notoriously thin.
Demand for experienced bankers and traders far outstrips supply as firms from Lehman Brothers and UBS to Goldman Sachs expand their teams in a market where investment banking revenue jumped 23 percent to $413 million last year, according to market data firm Dealogic.
“Salaries are at Singapore or Hong Kong levels, but the fees are not,” said Hemendra Kothari, chairman of DSP Merrill Lynch. “If the cost keeps increasing, you're not going to take up unprofitable transactions. You'd turn choosey.”
Tata Steel on Wednesday won an auction for Anglo-Dutch steelmaker Corus Group, paying $12 billion in the type of deal needed to support the banks' costly expansions.
Revenue generators at global securities houses in India now make about 90 percent of what their Hong Kong and Singapore peers earn, compared with about 30 percent two years ago, headhunters say. Veteran Hong Kong bankers make well over $1 million in salary and bonus, and over $3 million in a good year.
Yet the average fee on an Indian equity offering was about 1.6 percent last year, against nearly 2.3 percent for China issues and up to 7 percent for U.S. initial public offerings. Deals from state-run firms like Power Finance Corp. carry fees of less than 1 percent and are sometimes done for free to curry favour with the government.
China investment banking revenues grew to a record $1.3 billion last year.
Salaries aren't the only skyrocketing expense putting more pressure on bank profit margins.
Mumbai office rents soared 75 percent in the year to September, making the city more expensive than Manhattan or Paris and ranking it seventh in the world, according to data from commercial real estate broker CB Richard Ellis.
BRISK EXECUTIVE TURNOVER
A surge of new players other than traditional investment banks is also contributing to human resources headaches.
“Demand has gone up substantially because apart from investment banks coming in and expanding, there are a lot of private equity players also entering the market,” said Luis Moniz, a principal with executive recruitment firm Heidrick & Struggles in Mumbai.
“Compensation levels would be more or less on par with any other place in the world,” he added.
Executive movement has been brisk, and many non-resident Indian bankers are eager to return to the market. Merrill Lynch is moving veteran banker Sumeet Puri to Mumbai from Hong Kong to run equity capital markets for its Indian joint venture.
Amit Chandra recently left DSP Merrill, where he was a managing director, for a likely switch into private equity.
Lehman poached Surojit Shome from Citigroup to run its Indian investment banking, and top equity sales expert Ashwini Agarwal quit UBS to take up an advisory role at $21 billion investment firm Emerging Markets Management LLC.
Securities houses expect a serious return on their big salary outlays, as India is expected to help drive revenue growth for years as deal sizes grow, with many Indian firms making overseas acquisitions. The Indian stock market rose more than 46 percent last year.
Many bank executives see the current pace and cost of expansion as reasonable, given the Indian opportunity.
“One should not look at just the fees on a particular transaction, but its potential to generate revenues in related areas,” said Ashok Pandit, managing director of equity capital markets at Deutsche Bank, one of the most active foreign banks in India.
But others are more cynical.
“This is the longest bull market, (but) despite that, investment banks have not made huge money,” said the head of investment banking at a local firm, asking not to be named.
“For the money the new entrants are spending, you need lots of transactions to survive, which I don't think is there.
Source : Reuters