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January 11, 2012 6:12 pm
Headhunters in Hong Kong say the lay-offs announced in the past few months in Asia’s banking industry are just the beginning and expect there will be far worse to come, predicting the total size of the sector in the region could shrink by more than 20 per cent.
At the end of last year Société Générale announced it was laying off almost 1,600 staff – 13 per cent of the French bank’s global headcount. Of that total, a mere 100 were leaving Soc Gen’s Asian corporate and investment banking arm.
For a time, it seemed Asia would escape the sweeping job cuts happening elsewhere. But confirmation this week that Bank of America Merrill Lynch was laying off a fifth of its Asian managing directors – steep by investment banking standards, where cuts of 3-4 per cent are normal – suggests those hopes are misplaced.
“Nobody is untouchable,” says the head of public relations for one of the global banks in Hong Kong.
Banks have been shedding staff and trimming bonuses as the global industry contends with weak equity markets, slack new listings and tightening regulations. But Asia has traditionally been a key area of growth and profit.
“This time it is different,” says one Hong Kong headhunter who specialises in financial services. “Asia was relatively untouched last time but not now.”
Asian growth may have held up better than elsewhere in the world since the 2008 global financial crisis but the region has not been exempt from ailing markets or regulatory imperatives and it is also facing increasing competition from the Chinese market which is driving down deal fees.
Last year, the value of new listings in Asia shrank by more than half to under $84bn, according to Dealogic data, down from $169bn the previous year. And while mergers and acquisitions held up better, activity was still down 9 per cent from 2010’s levels, while investment banking fees slid from $9.9bn to $8.6bn the previous year.
At the same time, because there was widespread optimism about Asia’s prospects at the beginning of 2011 many banks in the region raised base salaries, ratcheting up costs in anticipation of business that has failed to materialise.
Moreover, requirements for more capital and regulators’ efforts to discourage activities considered overly risky and conflict of interest issues, such as banks’ trading for their own account – some of their most profitable activities – have further eroded profitability.
“The regulators are forcing the banks to become much more narrow and less diversified institutions,” says Jon Wright, chief executive officer of Global Sage, a headhunting firm with offices in the main financial centres.
Headhunters say most of the job cuts in Asia so far do not fully accord with these new realities.
HSBC, once renowned for job security, has announced a “redesign” that involves cutting 3,000 jobs in the region over three years, most of which are back-office staff.
When JPMorgan reports fourth-quarter earnings on Friday, it is expected to announce global lay-offs. While the bank is undersized in Asia, there may be job cuts in the region, according to people familiar with the situation.
Goldman Sachs, which has a policy of cutting the weakest 5 per cent globally every year (and pruning its partner ranks, albeit with secrecy, every two years), says its Asia headcount was essentially flat for 2011.
Some banks may be relatively resilient. Citigroup is enjoying a renaissance in its fortunes in Asia as it celebrates its 200th birthday in the region this year. However, it has pared its worldwide staff from 350,000 to 250,000 since 2008.
While there are businesses in Asia that are expected to do comparatively well this year such as M&A, competition, especially from China, means that the fees will still be lower than in the past.
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