Global investment banks retreat from China expansion

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Western financial institutions in China have cut their investment banking workforce by the most in years after a market slowdown hit profits and halted years of expansion in the country.

The cuts in 2023 came as five of the seven Chinese securities units that are part of Wall Street and European banks either made a loss or reported tumbling profits, according to recently released annual reports. The seven units employed 1,781 people last year, a fall of 13 per cent from 2022.

China’s capital markets activity has slowed in a weaker economy dominated by a prolonged property slowdown and the fallout from rising geopolitical tension between Washington and Beijing.

“Western investment banks are caught in a vicious cycle,” said Han Lin, China country director at consultancy The Asia Group. “Weak deal flow means less investment in onshore capability, which limits further deal flow.”

Some banks “are running out of patience when the opportunities in India, south-east Asia and the US are looking more promising”, he said.

International financial groups have been able to take full control of their mainland securities houses since a wave of regulatory changes in 2020. The units represent a small part of the global profits at the banks, which declined to comment.

Banks eliminated more than 60,000 jobs worldwide in 2023, as a decline in dealmaking and public listings caused fees to plummet. The declines in China contrast with earlier hopes that their business in the country would continue to grow even if it slowed elsewhere.

Jamie Dimon, chief executive of JPMorgan, said at a conference in May that part of its investment banking business in China had “fallen off a cliff”.

Staff numbers had been rising almost constantly since 2018. Even in 2020, as Covid-19 restrictions made hiring difficult, the headcount at the units fell by less than 3 per cent.

At Credit Suisse’s unit, which UBS took over after buying the bank last year, the number of employees fell 46 per cent to 126. UBS agreed to sell the unit to a state-backed fund this month. Staffing numbers at UBS’s own mainland unit held steady at 383, the only one not to reduce headcount last year.

Morgan Stanley’s China unit recorded a loss for the first time since 2019, while at JPMorgan’s venture in the country, profits fell 55 per cent to Rmb119mn ($16mn). Morgan Stanley’s unit said in its annual report that the environment had been “challenging”.

Staffing numbers fell far less at JPMorgan and Deutsche Bank than at rival China units. Deutsche Bank only owns 33 per cent of Zhong De Securities, its mainland joint venture.

Goldman Sachs China, which last year separated from a joint venture partner, recovered from a lossmaking 2022, but its profit of Rmb193mn was lower than in any other year since 2018.

The number of employees in its China securities unit fell from 500 to 370 as the bank cut jobs worldwide. Some employees were moved to other units in the bank, and some stayed with its former joint venture partner Beijing Gao Hua Securities, a spokesperson said. Goldman Sachs previously outlined a plan to double its workforce in China to 600, the Financial Times reported in 2021.

Dealogic data as of May showed just $8.3bn of initial public offerings in China, the lowest total over the same period since 2009. Overseas listings need approval from China’s regulators, under rules introduced last year. Cross-border activity including mergers and acquisitions has also remained weak.

The performance of the investment bank units may not capture the full picture of the banks’ business in China. Some banks have other units in the country, and many use relationships formed through the mainland business to generate revenue that is booked in Hong Kong or elsewhere.

The 2023 figures are in sharp contrast with 2021, a record year for investment banks globally, when six of the seven made a profit in their mainland operations.

HSBC’s mainland unit bucked the trend, making a profit for the first time. “This momentum has come from HSBC’s growing client base and expanded product capabilities,” a spokesperson said.