Barclays has become the latest in a long line of banks to pull out of the unprofitable Asian cash equities business as fierce competition and high costs make it untenable for all but the largest players and a few boutiques.
The British bank said in an email to clients on Thursday that it is closing cash equity research, sales, and trading as well as convertible bond trading across Asia. It also plans to shutter all of its investment banking operations where it is sub scale across the region including Australia, Taiwan, South Korea and Malaysia.
About 230 people will lose their jobs in Asia as part of a global restructuring resulting in 1,000 redundancies, a person familiar with the matter said.
"We are sharpening our focus on the geographies and products where we have a clear competitive advantage, with a physical presence only in China, Hong Kong, India, Japan, and Singapore," Tom King, Barclays's global chief executive officer of investment banking, said in a memo to staff.
One banker who arrived at work in Hong Kong on Thursday morning only to be told he’d been let go said the severance package was disappointing and the atmosphere grim. Barclays's equities division, which is run by Vikesh Kotecha and John Chang in Asia-Pacific, will pay out bonuses for those who remain in March.
Rival brokers are already looking to snag Barclays's cash equities clients as well as the few the British bank is trying to hang on to. "Barclays are retaining a skeleton crew in a few areas, they can't hope to retain clients if they can't offer them freebies such as equity research," said one senior trader at a European bank.
Much of the British bank's trading flow will likely gravitate towards the largest brokers in the region such as Goldman Sachs, Credit Suisse, and UBS. However, a small proportion might find its way to boutiques since fund managers like to maintain multiple relationships for security purposes and because of increased pressure from regulators for greater transparency on how fees are allocated.
Brokers including Barclays ramped up their operations across the region in 2010 when stock markets surged, only to make a dramatic U-turn when revenues failed to cover the high cost of retaining staff across Asia’s patchwork of jurisdictions.
Malaysia's CIMB laid off 32 employees from its cash equities and investment banking divisions in Hong Kong on Friday; Jefferies cut just under 20 people in cash equities in December; Standard Chartered closed its equities business last year. Other brokers to pull out of the region since the global financial crisis include Piper Jaffray and Samsung Securities in 2012.
“Mid-size brokers have been decimated,” said one head of Asian equities trading based in Hong Kong. “There is no room for a me-too cash equities business; brokers are warring over every basis point of market share.”
The British bank's exit from the market is unlikely to significantly reduce the overcapacity as its equities trading share in Asia was outside of the top six, according to the latest survey by consultants Greenwich Associates.
Only a handful of equity franchises are profitable in Asia as commissions are squeezed by the shift to etrading, according to various industry sources. Margins have also been squeezed by the recent downturn in Chinese stock markets.
Kotecha had reportedly predicted in April that cash equities in Asia would make money in 2016 after the cuts he had already made.
After months of uncertainty, cryptic signals from headquarters, and leaks on looming job cuts, staff at Barclays heard the news from King via webcasts on the company’s intranet.
Asia co-head Eiji Nakai also spoke to staff via a webcast from Tokyo.
In the email to clients, Barclays said equity research, headed by Bhavtosh Vajpayee, will immediately cease to cover Asian listed stocks.
Some bankers have already left the bank.
Jake Scrivens, Barclays’s managing director and head of the investment bank's Asia Pacific markets structuring team, moved to Exiger, a financial crime, risk and compliance firm. Didier von Daeniken, who had headed Barclays’s private banking business for Asia Pacific, Middle East and Africa, left to join Standard Chartered in December.
Barclays is also selling its Asian wealth management division, according to a variety of well-placed industry sources.
Barclays said that it is returning to its roots, focusing on serving clients in its core European and US markets.
Pockets of traditional strength, which existed in Asia long before the British bank acquired Lehman Brothers's US business, will remain, such as equity derivatives and prime brokerage, which counts Nathan Fischer among its senior sales people.
A second senior trader at a rival broker said Barclays's equity derivatives and prime services operations could function as a standalone business, as it was well respected in the industry and thought to be profitable. US and European hedge funds with only a small proportion of their trades running through Barclays machines would likely keep using the service, a third rival trader agreed.
The email to clients said Barclays may continue to offer electronic cash ‘execution only’ services, run by Greg Lee, in certain instances.
But one Barclays banker said the business unit had been gutted.
Long-only fund managers are unlikely to continue to send orders to Barclays for electronic cash services if they no longer receive high-touch service or research, said the first rival senior trader, keen to snag the business.
Barclays’s jewel in the crown is its high frequency business in Japan, said industry rivals. “The seed of doubt might have been sown amongst its high-frequency clients that Barclays may not sustain this business going forward,” the trader said.
The job cuts will have a knock-on effect on the bank's investment banking arm. Its equity capital markets business in Asia will focus on helping Asian companies to raise capital in the US and Europe, given it no longer has any equity distribution capability within the region. ECM bankers will also continue to work on corporate equity structuring and private solutions.
"In banking, we will maintain a full-client offering in debt financing, risk management, and cross-border [mergers and acquisitions]. We will focus our equity capital markets offering on equity-linked financing, derivatives, and taking our local clients to the international capital markets, particularly the UK and the US," King said in the memo.
Its M&A bankers will focus on cross-border deals, much like its role in helping British retailer Tesco on the documentation of its sale of Homeplus to Korean private equity firm MBK.
Barclays had 18,200 full-time employees in the Asia Pacific region as of 2014, down from 18,500 in 2013 but up from 16,500 in 2012, according to its annual report. Its income from the region totaled £776 million in 2014, down from £1.28 billion in 2013.