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European banks set for more job cuts in Asian equities as China meltdown hits profits
[HONG KONG] European banks are set to trim more jobs in Asian equities, industry insiders said, as global cost-cutting reaches peripheral businesses in a region where a drop in Chinese trading volumes and local competition have hit profits.
Bankers and headhunters told Reuters that BNP Paribas SA , Deutsche Bank AG and Barclays PLC are among lenders likely to cut back equities trading and research teams in non-core markets in Asia this year.
The mooted cuts set the tone for a tough 2016. Already this year, turmoil in Chinese stocks has clouded the picture for brokers trying to drum up business in key commission-paying markets, as unpredictable central bank and regulatory action sent shares tumbling and triggered trading halts.
"We continue to see banks assessing profitability of businesses in Asia," said Paul McSheaffrey, head of Hong Kong banking at KPMG.
Weaker revenue and tighter regulations have dulled returns in the Asia equities business, McSheaffrey said, with the result that some lenders will trim operations in non-essential markets.
"Banks have to assess what is core to their customer franchise and shape their footprint accordingly," he said.
In markets such as India, home-grown rivals have cornered a bigger share of the domestic business and offer broader research services afforded by lower costs, bankers said.
Raja Lahiri, partner at consultancy Grant Thornton India in Mumbai, said there was "definitely pressure on the equities business" as falling fees made competing in overcrowded markets less attractive.
Barclays is already set to close investment banking businesses in South Korea and Taiwan, sources told Reuters. Standard Chartered PLC and Societe Generale, have also shut equities platforms or cut headcount.
Deutsche Bank, BNP Paribas and Barclays declined to comment on staffing issues. Industry insiders that spoke to Reuters declined to be identified due to the sensitivity of the issue.
With 10 of Europe's biggest lenders announcing 130,000 job losses since June, bank chief executives are looking to cut in businesses where they lack scale to focus on more profitable markets.
"The overall focus is on returns and if you look at the equities business in Asia the profitability is not that high,"said a senior equities banker with a large European bank.
"The size of the pie hasn't changed and with the United States raising interest rates, it will gradually shrink," the banker said. "So the focus is on large markets like the US" Mid-ranked equities players such as Barclays and StanChart expanded Asian equities platforms, including stock-broking and research, after the 2008 financial crisis, expecting strong economic growth would lead to booming stock markets.
That boom never came, and offering research and broking across each of Asia's fragmented markets has become expensive at a time when the focus for big investors is increasingly Hong Kong and the world's second-biggest economy, China.
Those two markets accounted for 54 per cent of Asia broker commissions last year, from 46 per cent a year earlier, according to researcher Greenwich Associates.
But industry insiders said a grim China outlook this year means there is unlikely to be a repeat of last year's trading bonanza, when the benchmark Shanghai-Shenzhen CSI 300 index climbed 46 per cent in January-June before tumbling 43 per cent by August.
"In a prolonged bear market people trade once then walk away," said a Hong Kong-based equities recruiter. "There's no money to be made for banks."