UBS Group AG (UBS), the Swiss financial investment banking group, had been banned from investing in the major initial public offering (IPO) sponsorship in Hong Kong (HK) over 10 months about misappropriation of the diligence process.
The ban against UBS was terminated two months before the completion of a year-long grounded as the group has improved its business operational standards. The investment company is likely to face an intense struggle to win back to maintain its presence in the HK’s IPOs competition.
Fierce Competition from Chinese Companies
In an unprecedented turn of the event last week, the Swiss bank’s year-long ban was lifted early as the HK’s regulatory authority found that the company had finally dealt with its due diligent process. The group was banned with a fine of HK$900 million ($116 million) imposed by the regulatory authority nearly a year ago.
Banker analysts viewed that the company had reduced its presence in the competition of IPOs during the period of its ban and many Chinese rivals have already dominated the IPOs business in HK. Benjamin Quinlan, chief executive of consultancy Quinlan & Associates stated, “After the fines, international banks – especially UBS – have the problem of clients perceiving due diligence processes as more rigorous and protracted with an international bank than a Chinese firm, making the latter more attractive,”
As per Reuters report, equity capital markets (ECM) which include IPOs sponsorship makes up a third of the combined banks’ investment in the Asia-Pacific region, or a quarter globally on average. With the development of fundraising of $25 billion from several investors, Hong Kong became the world’s third-largest market for IPOs investment after the Saudi Exchange and Nasdaq Composite.
Dealogic data showed, UBS had been in the top 10 companies of the last 15 years in the HK IPOs but was put under the condition of limited access to minor IPOs businesses during the ban. Quinlan commented, “ECM business in Hong Kong has become harder for international banks, who face fierce competition from Chinese competitors, many of whom have much larger onshore coverage … allowing them to serve a broader range of potential clients.”
UBS Bankers Still Have Confidence
Some of the old bankers for the Swiss investment bank shared their views on positive notes for the UBS’ confidence to win back its previous clients. The early end of the UBS ban would expect a good start for the company and the company’s earnings report would be released on Tuesday, January 21, 2020. Despite UBS officials declined to comment on the topic, one China-based UBS investment banker said as reported by Reuters, “I’ll certainly be busier than last year. It’s good news for the franchise and for us who didn’t leave for rivals after the ban.”
The banker further asserted, “It’s also a good time to win back several important clients which didn’t feel very comfortable working with us (during the ban).” Describing the prospect of the company’s growth, another Hong Kong-based UBS banker said, “We have to work harder as there won’t be any excuses for the lack of good deals or low league table ranking.”
According to Reuters’ calculation from Delaogic data, mainland China-based banks had substantially increased in the HK IPOs listing that led to account for an average volume gain of 34% this year from 22% in 2016. UBS had made 30% of its pre-tax profit in the Asia-Pacific region’s banking investment in 2018. The main advantage of the Swiss bank was that it has been maintaining its close ties with Chinese state-owned enterprises; many of these companies have large listings in HK’s IPOs and Australian deals.
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