February 9, 2017 / 6:42 AM / 7 months ago

China bankers: an asset with diminishing returns

A man looks at the Pudong financial district of Shanghai November 20, 2013. With a shift in tone and language, China's central bank governor has dangled the prospect of speeding up currency reform and giving markets more room to set the yuan's exchange rate as he underlines broader plans for sweeping economic change. The central bank under Zhou Xiaochuan has consistently flagged its intention to liberalise financial markets and allow the yuan to trade more freely, even before the Communist Party's top brass unveiled late last week the boldest set of economic and social reforms in nearly three decades. REUTERS/Carlos Barria (CHINA - Tags: BUSINESS CITYSCAPE TPX IMAGES OF THE DAY) - RTX15LH0

HONG KONG (Reuters Breakingviews) - Chinese rainmakers are becoming a headache. Global banks still need them to navigate the country’s corporate waters. But sudden disappearances of corporate and financial tycoons make high-flying staff a risky commodity. Compliance costs are rising, while their potential is shrinking.

The People’s Republic remains central for global banks in Asia. The value of outbound mergers and acquisitions rose 46 percent to a record $105 billion last year while listings by mainland companies made Hong Kong the world’s top venue for initial public offerings. Nonetheless, foreign banks have become pickier. An ability to navigate a global environment has become more important than just bringing connections.

Banking packages are meanwhile going down, part of a structural downward trend within the industry. While a China head at a global bank could in the past command $4 million a year, these days packages for new hires are rarely above $2 million, according to people familiar with investment-banking hiring. Senior appointments, sometimes poached from local banks, are now often below $1 million. A clampdown on outflows at home and tighter scrutiny of deals abroad means making money will be harder, and a $264 million fine agreed by JPMorgan in November with U.S. regulators over hiring friends of Chinese officials dealt a warning.

But there is now another risk: the expanding reach of China’s authorities. Sudden disappearances of corporate and financial tycoons have been linked in the media to Beijing’s aggressive crackdown against corruption and financial crime. Those who suddenly went missing and then reappeared included, among others, Fosun’s Chairman Guo Guangchang and the China head of hedge-fund manager Man Group. More recently, a Chinese billionaire tycoon went missing in Hong Kong around Chinese New Year, headed for China to assist authorities in a financial probe, according to media reports.

To address the risk, headhunters and banks have ramped up background checks on prospective mainland hires, especially when poaching from the local banks. Ticking the box in terms of banking skills is not enough. Candidates are now facing extensive rounds of grilling to ensure their behaviour fits with tough global banking standards. It’s not unusual for a China position to go unfilled for six months or more – not the case before. As with any commodity, the higher the risk, the warier the buyer will be.

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