UBS conquers gloomy IB market to top of the Australian fee league despite industry slump

UBS was the top fee earner in Australia among investment banks during 2023 in what was the industry’s second consecutive year of shrinking revenues.

UBS co-head of Asia Pacific mergers and acquisitions Nick Brown.

UBS has emerged as the top fee earner among Australian investment banks in 2023, a year in which industry revenues tumbled by almost a third to $US2.2bn, and mergers and acquisitions volumes fell to the lowest level since 2020.

Preliminary data from a review by LSEG shows total investment banking revenues have shrunk for the second consecutive year, with fees from M&A tumbling 43 per cent in the year to December 20 as buyers waited for asset values to fall in line with interest rate increases.

The year past was marked by plummeting confidence, shrinking deal making, and widespread lay-offs across the investment banking industry, driving a 20 per cent fall in M&A volumes to $US103bn, the data shows.

Even the top earner, UBS, was not spared a 37 per cent fall in investment banking fee revenues, the data shows.

Commonwealth Bank and JPMorgan rounded out the top three IB earners.

Equity capital markets (ECM) underwriting fees fell by a fifth as IPO proceeds fizzled out to be 27 per cent lower.

Debt capital market (DCM) underwriting revenue was down 2 per cent to $US692m as private equity buyers, unwilling to stomach the pricier funding environment, put their debt-fuelled acquisition plans on hold.

However, materials companies defied the market gloom, driving both ECM and M&A activity, with US-based Newmont taking over Australia’s largest gold miner, Newcrest, in a $29bn transaction – the year’s largest.

UBS co-head of Asia Pacific M&A Nick Brown said the lower volume numbers might not reflect the full story, as the bank experienced “consistent behind-the-scenes activity throughout the year”.

This positioned the Zurich-headquartered bank well for a potential turnaround, if the positive sentiment continued – and the conflict in the Red Sea that threatens the outlook doesn’t escalate.

Mr Brown said the bank was already “seeing good activity from corporate buyers,” as a shift in market sentiment was driving M&A deals before the Christmas holiday.

In a tough year for investment banks operating in Australia, UBS has emerged as the top fee earner.

“On the financial investor and private equity side of things, clearly that activity has been quieter through this year. But as we look forward to next year, we believe the increased visibility and confidence around the economic outlook, the significant dry powder that financial investors have to deploy, and a backdrop of improving financing conditions will lead to a significant step up in activity from private equity,” he said.

The LSEG Investment Banking Review shows Bank of America and JP Morgan took top spots in the announced M&A league table, while Barclays and National Australia Bank took first and second spots in the ECM and DCM tables, respectively.

Mr Brown said that with confidence increasing in the last couple of months in line with the improving economic outlook, companies and private equity buyers are now looking at doing deals.

The data comes in a week when about $5bn of deals was revealed in just one day, as investors and companies seek to capitalise on a rally fuelled by the possibility of earlier-than-expected interest rate cuts.

On Monday, share registry Link, building materials provider Adbri, and dental group Pacific Smiles, all told shareholders they had been approached with buyout proposals.

Earlier this month, oil and gas company Santos announced it was in merger talks with its larger rival, Woodside Energy, for a potential $28bn deal, while Sigma Healthcare said it had agreed to a merger with the operator of the Chemist Warehouse pharmacy chain to create a company worth more than $8.6bn.

“As we look forward into the new year, we expect activity to remain constructive and we’re expecting transactions to get announced,” Mr Brown said.

UBS is advising Link alongside Macquarie Capital, while JPMorgan and Barrenjoey are serving Adbri, and Greenhill & Co is advising Pacific Smiles.

Meanwhile, a Bank of America fund manager survey published this week shows investors are the most optimistic in a year, as broad sharemarket indices in the US and Australia sit near all-time highs, buoyed by a dovish pivot from the US Federal Reserve last week.

The survey, conducted between December 8 to December 14, shows worsening geopolitics was cited as the third largest risk, behind a global recession and risks that high inflation keeps central banks hawkish.