Investment banking plays a vital role in facilitating capital flows and supporting economic growth. As China continues financial reforms, its investment banks have grown rapidly, with total assets exceeding $40 trillion in 2022. However, they also face performance challenges. This article analyzes price trends and financial data of major Chinese investment banks.
Revenue growth slowdown and structure changes
Chinese investment banks have seen revenue growth slowdown since 2018, from double-digit growth to low single digits recent years. Fee income from IPO sponsorship and M&A advisory services declined due to cooling capital markets. At the same time, banks expanded intermediary businesses like brokerage, trading, and asset management to stabilize income.
Profitability pressure and NPL increases
While shifting business focus, most banks saw profit margins shrink due to higher operating costs and asset risks. The average ROE of top investment banks dropped from 16% in 2017 to 11% in 2022. Some banks also reported rising NPL ratios as the economy slows down, indicating deteriorating asset quality.
Stock prices peaking with liquidity decline
Share prices of major investment banks have retreated 30-50% from recent peaks, mirroring the downturn in profitability. Trailing P/E ratios corrected from above 20x historically to mid-teens currently. But valuations remain elevated relative to global peers, with price-to-book ratios still above 1.5x.
Mixed outlook with challenges and opportunities
Near-term headwinds persist for Chinese investment banks, including economic uncertainty, default risks, and capital market volatility. However, China’s financial reforms and capital account liberalization could facilitate the rise of Chinese investment banks as global leaders long-term.
In summary, while major Chinese investment banks have achieved remarkable growth in size, they now face pressure from slowing revenue expansion, declining margins, rising risks, and potential valuation corrections. Business transformations and risk control are crucial going forward.