Shifting focus

More than 160 jobs have been cut in investment banking in Asia in the past two months, and that’s not counting the unlucky bankers among Credit Suisse’s ranks who have yet to learn that they are surplus to requirements at UBS.

Around 200 banks and brokerages are fighting it out in Asia for a share of a decreasing fee pool. Some can afford to subsidise their Asia businesses with profits made from the US or mainland China, but others need to cut costs, especially if they over-hired in recent years.

US banks in particular invested heavily in hiring China and technology coverage bankers at the height of the 2020–21 boom, a high-water mark that looks unlikely to be reached again in the short term now that many Chinese tech companies are restricted from listing overseas on national cybersecurity grounds or have had their expansion plans curbed by regulations.

The fact is that, like many of their tech clients, too many banks expected exponential growth to continue and were left overstaffed when deal flow slowed instead.

Asian deal volume has dropped, but it’s close to 2019 levels, and investment banks weren’t despairing then.

In the IPO market, Goldman Sachs and Bank of America – two of the banks which have been cutting staff in Asia – have lately narrowed their focus. The two are no longer involved with some of the smaller Hong Kong IPOs that made up much of their ECM deal flow this year.

The shift in strategy is clear. Bulge bracket banks won’t spend their time on small deals that won’t generate decent fees or attract international investors.

There’s no point undercutting a dozen Chinese brokerages for a deal that earns league table credit but barely covers banks’ costs.

Asia is still going to be a crucial engine of capital markets growth over the next few decades, and global banks will still need to be able to connect the region’s corporates and investors with the rest of the world.

Investment banks just need to resist getting carried away with their expansion plans the next time the market picks up and figure out where they can deploy their resources most effectively.