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Western financial institutions in China have cut their investment banking staff by the most in years, after a market slowdown eroded profits and halted years of expansion in the country.
The cuts in 2023 came after five of the seven Chinese securities units that make up Wall Street and European banks posted losses or falling profits, according to recently released annual reports. The seven units had 1,781 employees last year, a 13 percent decline from 2022.
Chinese capital market activity has slowed amid a weaker economy dominated by a prolonged slowdown in the real estate sector and the fallout from rising geopolitical tensions between Washington and Beijing.
“Western investment banks are in a vicious circle,” said Han Lin, China country director at consultancy The Asia Group. “Weak deal flow means less investment in onshore capacity, which limits further deal flow.”
Some banks are “running out of patience while opportunities in India, Southeast Asia and the US look more promising,” he said.
Global financial groups have been able to take full control of their onshore securities houses since a wave of regulatory changes in 2020. The units represent a tiny fraction of global profits for the banks, which declined to comment.
Banks globally are cutting more than 60,000 jobs in 2023 as a slump in dealmaking and listings sent costs tumbling. The declines in China contrast with earlier expectations that their business would continue to grow in the country even as it slowed elsewhere.
JPMorgan CEO Jamie Dimon said at a conference in May that some of the investment banking business in China had “fallen off a cliff.”
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The number of employees has increased almost steadily since 2018. Even in 2020, when Covid-19 restrictions made recruiting difficult, the number of employees at the units fell by less than 3 percent.
The Credit Suisse unit, which UBS acquired after buying the bank last year, saw its workforce fall 46 percent to 126. UBS agreed to sell the unit to a state-backed fund this month. The workforce at UBS’s own mainland unit remained steady at 383, the only one that did not cut staff last year.
Morgan Stanley’s China arm posted its first loss since 2019, while profit at JPMorgan’s business in the country fell 55 percent to Rmb119mn ($16mn). Morgan Stanley’s unit said in its annual report that the environment was “challenging”.
Headcounts fell far less at JPMorgan and Deutsche Bank than at rival Chinese units. Deutsche Bank owns just 33 percent of Zhong De Securities, the mainland joint venture.
Goldman Sachs China, which last year split from a joint venture partner, recovered from a loss-making 2022, but its profit of 193 million yuan was lower than in any year since 2018.
The number of employees in the Chinese securities division fell to 370 from 500 as the bank cut jobs globally. Some workers were transferred to other parts of the bank and some remained at former joint venture partner Beijing Gao Hua Securities, a spokesman said. Goldman Sachs previously outlined a plan to double its China workforce to 600, the Financial Times reported in 2021.
Dealogic data from May showed just $8.3 billion in IPOs in China, the lowest total over the same period since 2009. Foreign listings must be approved by Chinese 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 give the full picture of banking operations in China. Some banks have other units in the country and many use relationships formed through their mainland operations to generate revenues booked in Hong Kong or elsewhere.
The 2023 figures are in stark contrast to 2021, a record year for global investment banks, when six out of seven banks made profits from their onshore operations.
HSBC’s mainland unit bucked the trend and turned a profit for the first time. “This momentum is driven by HSBC’s growing customer base and expanded product capabilities,” a spokesman said.