That message comes across all the stronger since the layoffs are being made across all regions û squashing the long-held belief that Asia, being a region of comparatively higher growth, would be able to ride out the storm û and more importantly includes staff within most divisions of the banks and at all levels of seniority, from juniors and associates all the way up to managing directors.
The latter in particular shows that there are no safe havens anymore and that banks are prepared to let go of high profile and highly regarded bankers in their quest to cut costs. To be sure, the staff cutbacks are being made in response to the slowdown in business this year and the divisions that have seen a particularly sharp drop-off in activity are also the ones facing the most severe staff reductions. In Asia, one major investment bank is said to have closed down its entire leverage finance desk, while another is said to have let go of its real estate team. And on the trading floors, juniors are fast becoming a bit of a luxury as banks try to adjust the size of their teams in response to the drop in daily turnover.
During a more ônormalö cycle downturn, investment banks wouldnÆt close down entire departments and typically would hold on to their most senior staff while riding out the downturn in order to be ready to do business when things pick up again. The fact that they are not doing so this time, suggests that, for certain parts of their business at least, they are not expecting a recovery of any major significance in the next six to 12 months.
ôWe are now in a time when even good people are being let go,ö reflected a banker at one of the firms that announced layoffs in Asia last week.
Within investment banking, equity capital markets issuance in Asia ex-Japan is down 64% so far this year compared to the same period last year, while debt issuance is off by more than 50% with no G3 issuance at all for the past 10 weeks, according to Dealogic. M&A has held up better and is largely flat on a year-on-year basis, partly because of the acquisition opportunities arising from falling valuations. However, this part of the market too has seen an almost cliff-like drop-off in the number of announced deals over the past couple of months.
Among the divisions that still have plenty of work are those that structure products specifically for risk management and hedging purposes, for which there is still strong interest. Banks with significant corporate banking businesses, like Citi, Deutsche Bank and HSBC, are also seeing continued good demand for their cash management services. Private banking is also widely regarded as another area that ought to hold up okay in the current downturn, although sources say Citi laid off a sizeable number of its private bankers in Asia last week. Although not confirmed, the latter would be worrying since it suggests that Citi may be losing clients because of concerns about its balance sheet.
CitiÆs shares were among the top losers on Wall Street last week and ended the week below $4 amid talk that the worldÆs largest commercial bank was looking for a potential new owner who could inject fresh capital. The share price has plunged 86% this year, including a 74% drop in the past three weeks, as investors worry about the overall health of the bank, the potential for a further decline in the value of its subprime-linked assets and its ability to raise new capital if needed. Amid this bubbling confidence crisis, investors paid little attention to the positive elements of CitiÆs pledge to cut costs and reduce the overlap between the commercial bank and the investment bank, focusing instead on potential problems that may have prompted these drastic measures.
In a so called ôTown Hall meetingö to the staff last Monday, CitiÆs CEO Vikram Pandit said the bank is aiming to cut both costs and the number of employees by 20% from their respective peak levels in the near term, but stressed that the bankÆs current capital position is strong with a tier-1 capital ratio of 10.4%.
With regard to the reduction in staff, Pandit said the bank will reduce its total headcount to about 300,000 from 352,000 at the end of the third quarter. However, about half of that will be achieved through the sale of businesses, resulting in actual layoffs of about 26,000 people. And the management wasted no time in implementing the plan û at least not in this region. According to sources, the bank let go of about 15%-30% of its employees across most departments in Asia last week. In investment banking, the numbers were said to be at the low end of that range, translating into about 15-20 people, most of whom were at or below the vice-president or associate level, although several sources said the cull went up to the MD level.
An obvious reason for letting go of an MD instead of an associate is that the salary savings will be greater. However, since even senior bankers are not expecting to get much of a bonus this year (if at all) the salary gap is currently a lot smaller than in a typical year. That said, the reason why the layoffs are happening now, towards the end of November, is obviously that the management wants to reduce the number of staff that it has to reward from the tiny bonus pool that it does have.
Partly because of its massive size, but also because of the overlap between the corporate bank and the investment bank, the layoffs at Citi are the most numerous among what has been announced in Asia so far. But the downsizing appears to be happening across the board and sources say no one bank is expected to be spared.
Also last week, HSBC laid off 500 people in Asia, of which 450 were based in Hong Kong. The bank provided no breakdown, but sources say the majority of the reductions came within the Personal Financial Services division, which includes the retail bank. Rough estimates suggested that about 25 people were let go from the investment bank in Asia and another 15 from global markets, which includes sales and trading. Again, at least one MD was among those who lost their job.
Media reports also said Morgan Stanley reduced its staff in Hong Kong last week by about 100 people, or roughly 6% of its total staff based here. Among those leaving was the bankÆs head of prime broking for Asia, Kurt Baker. Baker had spent more than 15 years at the firm and was widely respected in the industry for his insights into the alternatives and hedge fund world.
This latest round of layoffs comes after Goldman Sachs reduced its investment banking staff in Hong Kong by about 100 people a few weeks ago and by about 13 people in Tokyo, accounting for about 10% of the investment banking division in each country. The cuts were part of a plan to reduce staffing levels by 10% globally to the levels they were at in 2007. This suggests the total layoffs were about 3,200 people, of which Asia accounted for around 300. Aside from Hong Kong and Tokyo, India was also hit quite hard, according to sources.
And in mid-October, Merrill Lynch said it would reduce its global headcount by about 500 people in response to the decline in trading volumes and revenues as well as the worsening outlook for financial markets. The cuts included at least 75 jobs in Asia-Pacific, of which most were in sales and trading. Given the relatively low global number, most industry observers expect Merrill to announce another round of job cuts in early January once its merger with Bank of America has been completed.
And the expectations are that there is more to come over the next couple of weeks. On Thursday last week, The Wall Street Journal reported that JPMorgan is planning to let go of 10% of its investment banking staff which number about 31,000 people globally, including 7,000 that it took over from Bear Stearns earlier this year. The report hasnÆt been confirmed.
And although drastic, bankers at several firms note that the current round of layoffs only position the banks to deal with the expectations of a slow beginning to 2009. If there are no signs of improvement, or indeed, if the market situation continues to deteriorate, there could well be another industry-wide cull in three or six monthsÆ time.
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