US and European Banks Cutting Investment Staff in China Amid Market Downturn

Summary

Amid weak domestic demand and geopolitical tension, top financial institutions are reducing their staff in main investment banking hubs, including the Chinese mainland and Hong Kong. The trend is set to continue in the coming months. Major banks like American Lazard and European Rothschild are making significant layoffs, while Bank of America slashed over 20 jobs in Asia. Despite China’s slow economic recovery from the pandemic, bankers optimistically look towards promising deals from India to Japan to boost Asian revenue. However, bankers warn growth will continue to pose challenges.

Investment Banks’ Staff Reductions

Multiple sources confirm a new wave of staff reductions in major investment bank establishments in the Chinese mainland and Hong Kong. This trend, which started in late 2023, is set to escalate in the upcoming months.

Major Banks Announce Layoffs

Last month, U.S. boutique bank Lazard revealed an internal decision to close its Beijing office. This action resulted in some employees losing their jobs while others were relocated to Hong Kong. On the other hand, Bank of America disclosed job cuts of more than 20 bankers in Asia.

Rothschild Disbanding China Operations

In the fourth quarter, Rothschild, Lazard’s European peer, dissolved its Shanghai-based team. These are all indicative of the financial turmoil experienced by the banking industry in the region.

Due to the weaker-than-anticipated economic recovery and geopolitical tensions, China’s stock markets remain around five-year lows, which has deepened investor worries and reduced domestic demand. Some foreign investors have also been deterred.

China Market Outlook

Should the current market trends persist into 2023, industry insiders, including Sid Sibal, vice president Greater China and head of Hong Kong, at recruitment firm Hudson, suggest further cutbacks may be necessary.

As per Sibal, financial institutions have downsized approximately 20% of their workforce in Asia in 2023, with the greatest reductions since the 2008 financial crisis. In Hong Kong alone, over 400 investment bankers lost their jobs last year, mainly focusing on China deals.

A regional investment banking head at a large European bank, who chose to remain anonymous, doesn’t believe western investors will return to Chinese deals anytime soon. Global investment banks’ income generated from Chinese clients dropped to $4 billion in 2023, reflecting a 30% decrease compared to 2022. According to data from LSEG, M&A posted a 16% fall to $629 million last year.

UBS Headcount Reduction Plans

UBS is devising plans to downsize its workforce in the coming months; this follows a surge in China-focused bankers after the takeover of Credit Suisse. However, UBS has refrained from commenting on the matter.

Banks Adapt to Changes

Despite China’s downturn, bankers are optimistic that a promising streak of deals from India to Japan could bolster Asian revenue. Craig Coben, former Bank of America senior banker, warns, however, that fee income growth will remain challenging for the foreseeable future.

For the industry, Rahul Saraf, head of India investment banking at Citigroup, predicts a 15-25% growth in India’s revenue, buoyed by prospective multibillion-dollar transactions. He states, “All banks will add resources to India, but I don’t think there is a shift from China to India or Korea to India.”

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