Western investment banks in Asia are facing more pressure to reduce their workforce this year, as the economic and market turmoil in China, the region’s largest and most lucrative market, continues to worsen. The job cuts, which started in late 2023, are expected to intensify in the coming months, according to headhunters and bankers.
China’s economy, which grew by only 4% in 2023, the slowest pace in three decades, is showing signs of further weakening in 2024, as the government tightens its regulatory and fiscal policies to curb debt, pollution, and social inequality. The crackdown has hit various sectors, such as real estate, technology, education, and entertainment, and has dampened investor confidence and consumer sentiment.
The economic slowdown and the regulatory uncertainty have also affected the banking sector, as the demand and the revenue for financial services, such as mergers and acquisitions, equity and debt capital markets, and wealth management, have declined. According to Refinitiv data, the total value of announced deals involving Chinese companies fell by 28% in 2023, while the total value of equity offerings by Chinese companies dropped by 32%. The total value of bond issuances by Chinese companies also decreased by 9%.
The lower deal activity and the higher market volatility have reduced the fee income and the profitability of the banks, especially the Western ones, which have less market share and less political influence than their Chinese counterparts. The Western banks have also faced higher compliance and operational costs, as they have to navigate the complex and changing regulatory environment in China.
The extent and the rationale of the job cuts
The Western banks have responded to the challenging market conditions by cutting their staff, especially in China and Hong Kong, the key hubs for investment banking in Asia. According to headhunters and bankers, more than 400 investment bankers lost their jobs in Hong Kong alone in 2023, most of them focused on China deals. Some banks have also closed or downsized their offices in mainland China, such as Lazard and Rothschild, which shut down their Beijing and Shanghai teams, respectively.
The job cuts are expected to continue in 2024, as the banks try to reduce their costs and improve their efficiency. The banks are also looking to reallocate their resources and focus on other markets and segments that offer more growth and stability, such as Japan, India, Southeast Asia, and private banking.
The headhunters and bankers said that the banks are targeting to cut around 20% of their workforce in Asia on average this year, with some reductions reaching the highest level since the 2008 financial crisis. They said that the job cuts will affect all levels and functions of the banks, from junior analysts to senior executives, and from front-office to back-office roles.
The implications and the outlook of the job cuts
The job cuts have significant implications for the banking sector and the economy in Asia, as they reflect the changing dynamics and the uncertainties in the region. The job cuts also have personal and social impacts, as they affect the livelihoods and the careers of the bankers and their families.
The outlook for the banking sector and the job market in Asia remains bleak, as the economic and market situation in China is unlikely to improve in the near term. The headhunters and bankers said that the banks will remain cautious and selective in their hiring and expansion plans, and will focus on retaining and rewarding their top performers and key talent.
However, they also said that there are some silver linings and opportunities for the banking sector and the job seekers in Asia, as the banks will continue to invest and innovate in areas such as digital transformation, sustainability, and diversity and inclusion. They also said that the banks will look for new and emerging sources of revenue and growth, such as green finance, fintech, healthcare, and consumer sectors.
