Bankers Earn Meager 0.0002% Fee For Advising On $64 Bn HDFC Bank Deal
The $64 billion merger between two prominent Indian lenders has left financial advisers with minimal fees, underscoring the challenges faced by investment bankers in the country when it comes to generating profits. The merger, which involved Housing Development Finance Corp. (HDFC) merging into HDFC Bank Ltd., resulted in a fee pool of slightly over $1 million, with the bulk of the fees going to Morgan Stanley and Bank of America Corp., according to anonymous sources. The remaining advisers received only a nominal amount, as their role was limited due to the board and executives of the companies driving the merger process themselves. Some advisers were informed of the imminent merger just a day before its announcement and did not have any significant involvement in the deal.
The small fee pool can be attributed to the price-conscious nature of the Indian market, where value-added services and involvement in complex transactions are crucial to earning substantial fees. Pranav Haldea, the managing director of Prime Database Group, emphasized the need to keep costs in check in this challenging fee environment. Among the 18 advisers who received credit in league tables for the deal were major global banks such as Citigroup, Goldman Sachs, JPMorgan Chase, Jefferies Financial Group, as well as prominent domestic advisory firms like Kotak Mahindra Capital and Axis Capital.
Morgan Stanley and Bank of America received higher fees compared to other advisers because they provided a fairness opinion on the valuation of the proposed transaction, while the involvement of other advisers was limited. Both HDFC Bank and the advisers declined to comment on the matter. The struggles faced by investment banks in India to secure fee-generating business align with the broader challenges faced by advisers worldwide, as a significant decline in the value of mergers and acquisitions and initial public offerings has prompted job cuts across the industry.
Despite global layoffs within investment banking divisions, advisory units of both international and local banks in India have largely remained unscathed due to their already small team sizes and cost-conscious approach.
