Salient to Investors:

Global investment banks based in Europe and the US are losing market share in emerging economies to smaller domestic competitors.

Freeman & Co. said the share of fees for US and Western European banks in Latin America, the Middle East, China, India, Russia and Eastern Europe fell to 43 percent in 2012 from 69 percent in 2005 – less than 44 percent of fees in each of the past three years after never dropping below 59 percent in the decade ended in 2007. Freeman said Western European banks’ portion of syndicated lending commitments in Latin America dropped to 38 percent in 2012 from 67 percent in 2008, while their slice of fees fell to 31 percent from 45 percent. Global banks remain the biggest earners.

Paul Skelton at HSBC said the rise of regional investment banks has coincided with international firms looking at emerging economies and asking if it makes sense.

Eric Wasserstrom at SunTrust Robinson Humphrey said once the biggest financiers in the emerging markets, European banks are now retreating given their capital and funding constraints. Wasserstrom said the drop by Western banks may be hard to reverse as many of these institutions face pressure to cut compensation and overall costs, simplify their business lines and address capital and funding issues.

Huw Jenkins at BTG Pactual said it’s a question of whether the global firms can afford the investment to be competitive with the regional players.

Simon Maughan at Olivetree Securities said the primary reason behind the retreat from emerging markets was the shortage of liquidity at the beginning of the crisis, compounded by the creeping introduction of new capital rules that require higher weightings on emerging-market risks.

Brad Webber at Standard Bank said companies increasingly are using local firms along with international banks to provide advice on transactions.

Tom Kirchmaier at Manchester Business School said global investment banks are not naturally at an advantage in the fast-growing emerging economies because the majority of deals are local where local banks have superior knowledge, better networks, and long-established client relationships.

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