At risk

As investment banks face a long winter in Asian capital markets, there is an inevitable temptation to make up for reduced deal flow by cutting staff.

The flurry of lucrative Chinese tech listings in 2020 and the first half of 2021 led banks to expect this sector would be a mainstay of their businesses. Perhaps it will in future, but their TMT divisions in Asia are looking overstaffed since tech companies put their listing plans on hold last year and are now cutting headcount themselves.

Neither companies nor banks are willing to take the risk of bringing a Chinese tech IPO to market while Chinese authorities are still redrawing the regulations, and in any case equity markets are too weak to tempt them.

Credit Suisse looks like it will be the first international bank to cut back its ECM headcount in Asia, while some Chinese banks have also made reductions.

The bond market, too, has disappointed and some institutions have made layoffs. Reductions might not be quite so extensive there, as most banks have been running small teams that were barely able to cope with the record deal volumes of the past few years.

High yield, which once made up for the slim fees in Asian investment-grade deals, is in the doldrums this year as more and more Chinese developers default. If the few banks to have a dedicated head of Asian high yield had not already retired the role, it would be looking precarious now.

Instead, the Chinese houses that specialised in these deals are slashing staff numbers. Many took paper on their books to support the deals – viable in a bull market, but costly when there is a downturn.

FIG coverage positions seem to be under threat, too, as Chinese banks have recently raised most of their Additional Tier 1 capital onshore, depriving foreign banks of multi-billion-dollar deals.

The job cuts, though, will leave banks playing catch-up when issuance returns to its old pace – not least because some bankers have decided to leave Asia after all the turmoil of Covid-19.

It’s already tough to find talent in Hong Kong and Singapore, and replacing staff later won’t be quick or easy.

No one knows when issuance will recover, but the rebound is likely to be as sudden as the decline, especially if the current spike in inflation turns out to be transitory and a resolution is found to the Russian war with Ukraine.

When capital markets are back to 2021 volumes and some banks find themselves struggling to compete for deals or to execute the ones they have landed, they may wish they had been a little more patient.