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SOURCE FROM:http://www.wsj.com/
HONG KONG—Coming off a flush first half of the year on the back of booming China deals and trading, investment banks in Asia were in a strong position to step up hiring.
But with China’s market volatility leading to a weak third quarter and new regulatory requirements posing continual headwinds, Wall Street’s hiring plans in Asia have been scaled back. Some banks are expecting to keep headcount levels steady over the next several quarters, while at least one, Standard Chartered PLC, is shaking up its operations with hundreds of Asian job cuts to take place in coming months.
“Flat is the new up,” said one person close to an investment bank here, referring to the next year.
The first half of 2015 raised expectations. Investment-banking revenue in the Asia-Pacific region totaled $7.49 billion, up from $7.10 billion a year earlier, according to Dealogic. Asian share-trading volumes at the end of the second quarter were up 358% from a year earlier, and even excluding China rose 32%, according to the World Federation of Exchanges.
Asia’s growing revenue came against a backdrop in recent years of relatively resilient headcount numbers. Asian full-time front-office headcount, which includes investment bankers and sales and trading staff, declined 1.45% to 11,829 employees from the first half of 2013 through the first half of this year at the 10 largest global investment banks by revenue, according to business intelligence firm Coalition. That compares with a 6.3% drop in Europe, the Middle East and Africa and a 7.5% decline in North America and Latin America combined.
But then China’s stocks tumbled over the summer, which soured many investors on trading and depressed overall deal activity.
Asian share-trading volumes were down 34% to US$12.877 trillion in the third quarter from the second, according to the World Federation of Exchanges. Fixed-income trading volumes fell around 10% from a year earlier, traders said, as investors were put off by concerns over a potential rise in U.S. interest rates, and weakness in emerging markets and commodities. Global trading revenue in bonds, currencies and commodities declined in the third quarter at banks including Goldman Sachs Group Inc. and Morgan Stanley.
Asia-Pacific investment-banking revenue was also hit. It fell 32% to $2.9 billion in the third quarter from the second quarter, and was down 26% from a year earlier, according to Dealogic.
That decline—along with new global capital rules that have made some types of trading less profitable—has cooled enthusiasm for hiring.
In some instances, banks are choosing to replace departing senior, expensive talent with cheaper alternatives. Matt Pecheur, an executive director based in Hong Kong at recruiting firm Options Group, pointed to one bank that recently replaced a director-level foreign-exchange salesperson who left with someone two years out of college from the bank’s training program.
Most layoffs will likely come from banks that are restructuring. Headhunters and bankers in Hong Kong say they have received an influx of resumes from anxious investment bankers and traders in the city from banks including Standard Chartered andDeutsche Bank AG.
Standard Chartered is cutting about 1,000 senior staff globally as it simplifies operations to help shore up profitability. Hundreds of cuts are expected to be carried out in Asia and have already begun, people familiar with the matter said. The bank on Monday said it is exiting its equity-derivatives and convertible-bonds business, whose revenue is generated mainly in Hong Kong.
There have also been cuts at Deutsche Bank in Asia, people familiar with the matter said, ahead of the German lender’s announcement on Thursday of new financial targets. A Deutsche spokeswoman declined to comment.
Credit Suisse Group AG, which is bulking up its wealth-management operations, said last week it is scaling back in some parts of investment banking, but hasn’t elaborated on how much of that will be done in Asia.
To be sure, even though they aren’t growing, most banks in Asia aren’t currently planning drastic layoffs. In recent years they have already been trimming staffs and are operating with little fat, bankers say.
Some are making “strategic hires [in their investment-banking units] and replacing people who leave,” said Christian Brun, managing partner at Wellesley Partners, a recruitment firm based in Hong Kong. Mr. Brun said his firm is busy with searches, even though he doesn’t expect headcount to increase substantially over the next year.
One bright spot for banks in the region, aside from selective hires in investment banking, is stock trading. Equities revenue accounted for 44% of total Asia-Pacific investment-banking revenue in the first half of 2015, up from 38% a year earlier, according to Coalition. While overall Asian stock-trading volumes fell in the third quarter from the second, some banks have said their equities businesses held up well. Executives at J.P. Morgan Chase & Co. and Bank of America Corp. in recent weeks said they had strong equities activity in Asia in the third quarter.
Banks in Asia have been generally adding staff to their equities businesses in recent years even as their overall headcounts have been flat to down. That growth has come as China has been opening its stock markets further to global investors. Banks continue to see the business as a growth area despite recent hiccups, bankers say.
Eric Li, a research director at Coalition, said most of the banks his firm tracks have been hiring in cash equities—an area made up of stock research, and sales and trading of shares—and derivatives.
While China’s economic growth has been slowing, Asia is still growing faster than the U.S. or Europe, a major reason why banks like HSBC Holdings PLC, Citigroup Inc. and Credit Suisse are relying on the region as a key plank of strategies for future growth. HSBC earlier this year said it would refocus on Asia and that its “pivot” to the region would increase in coming years.
Credit Suisse is investing 700 million Swiss francs ($712 million) in Asia by the end of 2018 as it builds its wealth-management business. It plans to bring the number of private bankers to around 800 over that period from 524 at the end of September.
—Fiona Law contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com
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