Goldman Sachs to Sack Nearly a Third of its Bankers in Asia
See below:
In the latest sign, Goldman plans to lay off about 75 of the 300 bankers it employs in Asia, according to people familiar with the matter. The cuts will be concentrated in Hong Kong among junior staffers and won’t include Goldman’s operations in Japan or Australia, the people said.Chinese banks are increasingly siphoning away business from their Western counterparts, thanks in large part to their ability to lend huge sums of money for deals. China’s government has urged Chinese companies to work with domestic banks as it seeks to raise their profile abroad, advisers say.
Bringing jobs back to America?
What are your thoughts monkeys? Can we expect to continue to see decreasing numbers of IB jobs in Asia?
Asia has got an interesting dynamic. Like China/India are not accustomed to pay for "advice" (though this has slowly changed in recent years), the Asiapac market is not a big m&a fee machine like the US (with maybe the exception of JP/AUS where m&a margins are more in line with the western world). So it makes sense to start cutting there when things are slow.
I don't see that as a long term trend though, the region is just going through a slowdown and it would be suicide to not have a strong presence where the biggest economy is or you'll miss out on big tickets deals (eg alibaba) and relationships. Its one of those banking cycle where you "optimise" when it's slow and re-hire the kids of some rich SOE exec when things get better again
Could you please expand on what you mean that "China/India are not accustomed to pay for 'advice'"?
I'm assuming he means a lot of family-owned businesses that have an attitude of self-reliance and that are still skeptical of outside advice.
Im not an expert on that topic but talking with colleagues in the region my understanding is: - historically big banks are the big financiers and free/cheap advice was the way to earn the bucks on your products (dcm, lev fin, etc) - things have changed since but the m&a margin is ridiculously low compared to the US because 1) it's super competitive. There are a lot of players (add HSBC, Standard Chartered etc. On top of your regular US/EU IBs), for a market with less dealflow and less depth in liquidity 2) your cost is comparatively high-ie if you sent a senior US banker to that region you probably pay him a comp similar to that of the US, and you're getting less revenues 3) i heard a lot of tech deals happened lately without hiring an ib, so i think 4.2kformerpro's point above is valid
Competition / market dynamics is the biggest reason. The IB business model in Asia is low margin, high volume. Banks are willing to work for low fees and grind out deals quickly.
There are a lot of Chinese banks (CICC, CITIC) who compete with international banks. These Chinese banks are very capable and are willing to take low fees to work on deals. It's hard to raise prices once the fee precedents have been set.
Having spent some time in the HK office of the bank I was previously with, I have many first hand experiences of clients pushing back on engagement letter terms that would be standard in North America.
As you mentioned though, even though margins are low, major international banks have no choice but to maintain a presence there for whales like the Alibaba IPO.
It's also interesting to note that Chinese clients are perfectly happy to pay $1,000 an hour for legal advice from international law firms.
...that's a big job cut
About China and India not paying up for advice , thats partly true , people do take professional services and advice and many times dont pay up , its not that different from Latin America in that aspect.
That said GS is falling in the league tables in China and most business' is going to the local banks.It could be a cultural issue , also in emerging markets the closer you are to the Govt officials , the easier it is to get big contracts. GS and JPM have i think tried it and hence hit the headlines for shady HR practices where they have hired the son of some influential guy. Im pretty sure the local Chinese banks arent any better in shady practices and are probably even worse.
The title of this thread would've been cooler if it was written, "Goldman Sacks Nearly a Third of...."
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