With European banks scaling down their stock broking and investment banking operations globally due to falling profits and higher capital requirements, employees of domestic brokerages and investment banks are shying away from joining these companies.
Last week, UK’s Royal Bank of Scotland (RBS) announced it would sell or close its unprofitable cash equities, corporate broking, equity capital markets, and mergers & acquisitions businesses globally. The move will affect about 50 RBS employees in India.
RBS is not alone. Other European banks, such as Barclays, HSBC, Credit Suisse and UBS, have also cut jobs in India, as the sovereign debt crisis has eroded profits and stricter capital requirements under the Basel-III rules force them to shrink their balance sheets. According to data compiled by Bloomberg, European banks eliminated over 86,000 jobs in 2011.
“There is no job security in European companies at present. It’s better to earn less and wait for some clarity,” said the head of equity sales at a Mumbai-based domestic brokerage who refused to join the wealth management division of a European bank in India.
Head hunters say, in the current scenario, it is risky to join foreign companies, as the fixed costs of the business have risen to as high as 90-100 per cent of the income and, with no significant improvement in sight, there could be further job cuts.
“Foreign companies have greater exposure to global markets and are impacted by the downturn more than domestic institutions. At the moment, managing costs is priority. In the last few months, downsizing or rightsizing is very much on the agenda,” said Suresh Raina, partner at executive search firm Hunt Partners (India). “The proprietary trade is also shrinking as part of the global initiatives of MNC banks. This will, again, put the Indian banks on an even keel. It would be prudent to say Indian companies offer a much safer berth in the near term for the equity players,” he added.
To be sure, Indian brokerage companies are also under pressure due to falling cash market volumes and a slowdown in the capital market activity. According to ratings agency Crisil, compared with last year, the profits of Indian brokerages are expected to nearly halve in 2011-12. “Due to some of these fundamental changes in business, the pressure on broking houses during the current downturn will be more prolonged than in the previous one in 2008-09,” Crisil analysts said in a statement on Tuesday.
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Temporary phase
Those who look for global exposure and international experience still prefer foreign firms, say head hunters. “Though major financial companies are reducing operations in India, a few are still strengthening presence and creating enough room for new hiring,” said Anjali Forbes, senior partner at executive search company Transearch (India).
“After the collapse of Lehman (Brothers) in 2008, most people were scared of joining US companies in India. But, after the first round of quantitative easing, we had a bull market and, in 2009-10, nobody shied away. We are likely to go through a similar cycle this time, too,” said the head of institutional equities at a domestic brokerage. “If there is another powerful liquidity intervention by the European Central Bank (ECB) in February, the risk of euro unravelling will diminish. That will again make people confident about joining European companies in India.”
ECB last month pumped in $623 billion in three-year loans at one per cent interest in the banking system, reducing concerns about a credit crunch and helping shore up demand in recent auctions in the euro zone. It is expected to hold a similar auction of unlimited three-year cash in February.