Morgan Stanley, HSBC cutting Asia investment banking jobs on China deals slowdown

Morgan Stanley and HSBC are reducing investment banking roles in Asia due to a slowdown in deals involving China. This move reflects adjustments in response to changing market dynamics and evolving business priorities amid shifts in regional economic activity and investment trends.

In the latest move reflecting the challenges faced by financial institutions in Asia, both Morgan Stanley and HSBC have initiated significant cuts to their investment banking divisions in the region. According to informed sources, Morgan Stanley is set to reduce its workforce by at least 50 positions, representing approximately 13% of its Asia investment banking staff, starting this week. Thedecision underscores the firms' strategicefforts to streamline operations and reduce costs amid subdued deal activity and lackluster market conditions, particularly in China and Hong Kong.

The investment banking arm of HSBC, which derives a significant portion of its profits from Asia, has initiated layoffs beginning Tuesday. Sources familiar with the matter indicate that approximately 30 dealmakers in the region are expected to depart this week as part of the restructuring. All sources preferred to remain anonymous as they were not authorized to disclose information to the media.

When approached for comment, Morgan Stanley chose not to provide a statement regarding the job cuts.

In response to inquiries, an HSBC spokesperson stated that the bank remains committed to investing in and expanding its business, directing resources towards immediate opportunities. However, they refrained from commenting specifically on the reported job reductions.

As global investment banks grapple with mounting pressure to curb expenses amidst a sharp decline in revenue from capital markets and M&A advisory services, there's a looming possibility that more institutions will adopt similar cost-cutting measures in the near term.

This development signals a notable shift for Wall Street banks in Asia, which had previously expanded their presence in the region in a bid to capture a larger portion of dealmaking activities, particularly in China. However, the current landscape underscores the challenges faced by these firms as they navigate subdued market conditions and evolving economic dynamics.

The recent layoffs at Morgan Stanley and HSBC represent significant reductions for their China-focused investment banking units, reflecting broader trends in the industry. Other financial institutions have also implemented similar measures in response to a downturn in deal-making activities in China, exacerbated by a slowing economy.

Key listing destinations for Chinese companies are experiencing a dearth in dealmaking and declining valuations. Data from Deloitte indicates that Hong Kong's stock exchange witnessed a notable decline, with 12 initial public offerings (IPOs) raising HK$4.7 billion ($600.28 million) in the first quarter. This marks a 30% year-on-year drop and the lowest performance since 2009, underscoring the challenging environment facing the region's capital markets.

The latest data from the London Stock Exchange Group (LSEG) paints a stark picture of the challenges facing Chinese companies seeking to raise capital, both domestically and internationally. Money raised through initial public offerings (IPOs) by Chinese firms, encompassing listings on both onshore and offshore exchanges, plummeted by 80% in the first quarter of this year compared to the same period last year, totaling just $2.9 billion.

Within mainland China specifically, IPO activity took a severe hit, declining by 82% year-on-year to a mere $2.4 billion in the first quarter. This represents the lowest quarterly fundraising volume since the fourth quarter of 2018, according to LSEG data.

Moreover, the overall value of merger and acquisition (M&A) deals involving Chinese entities saw a substantial decrease of 36%, as reported by LSEG. This decline underscores the diminished earnings for bankers providing advisory services on such transactions.

In response to these challenging market conditions, there's a growing consensus among industry insiders that a new wave of workforce reductions initiated in late 2023 across mainland China and Hong Kong, crucial regional investment banking hubs for Western institutions, is poised to accelerate throughout this year. Bankers and recruitment professionals have highlighted this trend, indicating the ongoing adjustments within the financial sector to adapt to evolving market dynamics.

The investment banking landscape in the Asia Pacific region has witnessed a series of downsizing initiatives in recent months. In January, Bank of America took action by laying off approximately 20 bankers in the region, joining a wave of reductions that have swept through the industry. Notable players like UBS and Citigroup, along with several boutique firms, have also implemented similar measures as they navigate challenging market conditions.

Beyond Asia, U.S. banking behemoths have continued to streamline their operations, with Citigroup notably experiencing the most significant reduction in staff during the first quarter. This trend reflects the broader pressure faced by financial institutions globally to manage costs amid an uncertain economic outlook. As market dynamics evolve, banks are compelled to reassess their strategies and make strategic adjustments to maintain competitiveness and financial resilience.

Source: reuters