Bank of America (BofA) has set an ominous precedent in Asia, laying off 15 of its top-tier managing directors within a few weeks. It’s not unheard of for MDs to leave the building with a pink slip, but rare that they should bear the brunt in proportion with lower and mid-level staff. BofA is under extra pressure from the US housing crisis, and had hired the odd, big, expensive name. But, the current downturn may leave big earners elsewhere exposed, too.
In the past, Asian MDs tended to have a double shield. Their seniority made them harder to replace than juniors — especially those “origination” bankers who have the contacts that help rustle up deals. Asia also tended to get off lightly because of its growth potential. Banking in the region remains in a land-grab phase, even though investment banking fees are just 15 per cent of the global pool. So, the pursuit of revenues and market share often trumps earnings.
The current downturn has undermined that rationale. Fees in Asia have fallen even faster than elsewhere — down 17 per cent in 2011, worse than the United States or Europe, according to Thomson Reuters data. Banks have also miscalculated over China, which punches below its weight in terms of deals, and, probably, will for years. Global banks’ share of mainland IPO fees has been falling; Goldman Sachs didn’t underwrite any in 2011.
Not only has the value of an Asian MD fallen; so has the cost of losing one. If everyone cuts back at the same time, there’s less chance they get snapped up by a bulge-bracket rival. Even smaller players like Jefferies and Daiwa, which hired aggressively in 2010, are unlikely to take up the slack.
Some banks can defy gravity better than others – mainly those with strong cash generating engines. Citi’s transaction banking platform will allow it to fund expat packages a while longer, as will HSBC and Standard Chartered’s commercial banking operations. Strong equity trading businesses like Goldman’s or Morgan Stanley’s offer some padding, provided markets don’t collapse. But, an industry-wide shrinkage looks inevitable, and neither location nor seniority are a safeguard.