(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By John Foley
HONG KONG, Jan 11 (Reuters Breakingviews) - Bank of America (BAC.N) 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 U.S. 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 percent of the global pool, so 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 percent 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 (GS.N) 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 (HSBA.L) and Standard Chartered’s (STAN.L) commercial banking operations. Strong equity trading businesses like Goldman’s or Morgan Stanley’s (MS.N) offer some padding, provided markets don't collapse. But an industry-wide shrinkage looks inevitable, and neither location nor seniority are a safeguard.
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-- Bank of America Merrill Lynch plans to cut a fifth of its managing directors across Asia, according to sources cited by Reuters on Jan. 9, reflecting falling fees in the region, and a global strategy of cutting costs.
-- BofA’s cuts were centred on the investment banking business, including mergers and capital markets advisory, the sources said.
-- Other banks have been cutting jobs selectively in the region. Credit Suisse closed its fixed-income operations in Taiwan in November, while Australia’s Macquarie part-closed its equity derivative operations in Hong Kong.
-- Others including UBS, Deutsche Bank, Morgan Stanley and Nomura have pledged to cut costs without giving specific details of the effect on Asia.
-- Investment banking fees fell 17 percent in Asia in 2011 from the previous year to $16 billion, according to Thomson Reuters data, compared to a 2.4 percent fall in Europe, the Middle East and Africa, and a 3 percent fall in the Americas. Asia made up 15 percent of the global fee pool, compared with 23 percent in 2010.
-- Reuters: BofA cutting a fifth of Asia investment banking MDs - sources [ID:nL3E8C96C5]
-- For previous columns by the author, Reuters customers can -- For previous columns by the author, Reuters customers can click on [FOLEY/]
(Editing by Peter Thal Larsen and David Evans)
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