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I-Banking: On Cloud

That leads us to bottom-line issues. If it’s safe to assume that M&As, which account for the largest piece of the fee-pool, will remain where they are for some time to come, what about the fee-pool itself?

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Calendar 2015 will go down as the worst for i-bankers in the post-lehman period.

If you were to take mergers and acquisitions (M&A) — the most glamorous part of the i-banking suite — as a “mood indicator,” Bloomberg data shows we closed 2015 with $30.42 billion in value in 822 deals; that’s down 11.5 per cent from $38.11 billion in 573 deals in 2014. What’s salt in the wound is that 2014 was not bad given the mess we were in the last lap of UPA-II’s stint at the Centre when we saw a 35 per cent jump in M&A value over 2013.

If you were to look at Bloomberg data over the past seven years, annus horribilis was 2009 — M&As were at $19.33 billion (of which the biggest outbound deal of the year — the $10.7-billion Bharti-Zain — made up for 50 per cent of the volumes). In 2010, it was a more than a three-fold upswing to India Inc.’s all-time best of $70.32 billion; in 2011, it was $45 billion, but a large number of deals “floated in” from the preceding year and did not “originate” in 2011. In 2012, we saw $35.38 billion; and 2013 came in at $28.16 billion.

Statistically then, 2015 was better than 2013 and 2009. But bear in mind that “deal type” in Bloomberg’s M&A data includes mergers, acquisitions, divestitures, spin-offs, debt-for-equity swaps, joint ventures, private placements of common equity and convertible securities, and the cash injection component of recapitalisation. Now you might say while all this is not “pure-play M&A”, but it is still part of the business. But use another filter: closed deals; and the picture changes for the worse. The 2015 M&A numbers will read $22.5 billion in value, down by 60 per cent over 2014.

Do M&As pick up when the general economy is in less than a desirable state? While some may say it tends to drive consolidation, a deeper analysis is needed over boom and bust cycles to prove it is so. But for whatever it is worth, here’s something to chew on. Bloomberg’s John E. Morris (Editor of its 2015 M&A review) notes that globally, M&A volume soared in 2015 to $4.3 trillion, up from its previous peak of $4.1 trillion in 2007. He says the most striking feature of the M&A landscape was the number of very large deals — 57 worth more than $10 billion. That compares to 39 in 2007 and 50 in 2006. There were nine deals announced in 2015 worth more than $50 billion.

In the previous edition of the BW I-banking Survey with PwC’s knowledge support we had noted that the connection between non-performing assets, and asset reconstruction companies may trigger M&As. The injection of strategic debt restructuring as a variable by Mint Road was to act as a catalyst. Perhaps, the larger institutional mechanism for dud-loan settlement was not in place, but now we have the Bankruptcy Act.

That leads us to bottom-line issues. If it’s safe to assume that M&As, which account for the largest piece of the fee-pool, will remain where they are for some time to come, what about the fee-pool itself?

While exact numbers are hard to come by, the i-banking bouquet fee-pool topped Rs 2,000 crore in 2011; the current figure may — it depends on whom you ask — at best may top Rs 1,300 crore. Many a deal is only for the tomb-stone; bragging rights. And as more and more i-banks come into the same watering hole, it means that much less to gulp — be it in IPOs, QIPs or cross-border bonds.

The suits who sew deals lead a good life, but just a few who breathe the rarefied air at the top had a bulging wallet to show for their work. It would be juvenile to go by media reports of $1 million-plus in bonuses for some as a barometer of how well the industry is doing. Hires were flat.

The mantra for i-banking folks is simple — follow Mark Twain who said: “There are basically two types of people. People who accomplish things, and people who claim to have accomplished things. The first group is less crowded.”


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