Written by Serena Lee and Xie Yu
HONG KONG (Reuters) – Just a few years ago, China's booming economy and favorable business prospects prompted Western financial firms to expand into everything from investment banking to asset management. , a competition arose to procure human resources from all over the world. world.
But as doubts about China's economic recovery grow and the Chinese market lags behind global peers, many financial firms have taken a hit to their profits, a goal that was once a key part of their global growth strategy. restraining his ambitions.
Since the beginning of this year, a growing list of Western financial firms, including Fidelity International (FIL), Morgan Stanley, and Legal & General, have drastically cut headcount or shelved expansion plans with a focus on China. are doing.
More companies are expected to soon follow suit, as lukewarm deal pipelines and lackluster asset generation weigh on expenses and profits, according to senior executives, headhunters and analysts at foreign financial firms.
China's decline in attractiveness to Western financial companies comes as Beijing ramps up efforts to attract more foreign capital to revive the domestic economy amid continued geopolitical tensions.
For example, fund firm FIL is cutting 16% of its 120-strong Chinese team and expects losses in the country to widen from $41 million last year to $45 million this year, according to internal documents seen by Reuters. Expect.
FIL's workforce plans will be “significantly reduced” over the next four to five years compared to the business plan developed for 2022, according to a document distributed internally earlier this year.
In response to a Reuters request for comment, FIL said in a statement that the company remains focused on growing its mutual fund business in China and continues to plan for “different scenarios” in the current market environment.
“In early 2024, we will increase our registered capital and open a Beijing branch office in addition to offices in Shanghai and Dalian,” FIL said, without commenting specifically on its revenue outlook or plans to cut staff.
In the investment banking industry, Morgan Stanley and HSBC are cutting dozens of investment banking jobs in the Asia-Pacific region, with most of them focused on doing business with China.
The majority of Wall Street banks' China-focused investment bankers are based in Hong Kong.
“We have heard that several more investment banks and securities firms in Hong Kong are already considering job cuts,” said Sid Sibal, vice president of Greater China and head of Hong Kong at recruitment firm Hudson. .
“From the mountains to the valleys”
Over the past year, Goldman Sachs, JPMorgan Chase & Co., Citigroup, Bank of America and others have cut jobs in their China-focused investment banking units.
Sibal said some banks have reduced staff numbers this year due to low or no annual bonus payments, low voluntary redundancies, and the bleak outlook for China-related transactions and, ultimately, profits. There is a need to reduce it.
Morgan Stanley's net revenue from Asia fell 12% from a year earlier to $1.74 billion in the first quarter.
Funds raised by Chinese companies through IPOs, including both onshore and offshore exchanges, fell 80% year-on-year to $2.9 billion in the first quarter of this year, according to LSEG data.
The total value of merger and acquisition transactions involving China fell by 36%, according to LSEG data, indicating that the fees bankers were earning from clients for advising on such deals fell.
And in China's onshore funds market, asset growth slowed to 6% last year after increasing 1% in 2022, slowing from annual growth of more than 27% in 2020 and 2021.
Reuters reported in March, citing sources familiar with the matter, that Britain's Legal & General in February shelved plans to obtain an overseas investment business license in China and cut more than half its headcount in the country. Reduced.
Yun Ng, Global Asset Management Advisory Principal at Broadridge, said global companies expanding into China's domestic market have experienced a “peak-to-trough” journey due to the challenging financing and macro outlook in China. He said that
“As China's stock market and economic outlook remain weak, [foreign] Companies will inevitably take steps to streamline their operations, especially since most will have experienced mass hiring previously. ”
Foreign investment banks and asset management companies are expected to continue cost-cutting measures in the short term, but many companies are not expected to exit, betting on the recovery of the world's second-largest economy.
“From a policy perspective, the fact that there has certainly been a policy shift[in U.S.-China relations]and that is impacting the footprint that we may have from a business perspective,” said a U.S. banker. We are aware of that.”
“However, our customers are in China and we will continue to operate there. Given the importance of the economy, we are fully committed to China,” it said, citing the sensitivity of the issue. said the official, who declined to be named.
(Reporting by Selena Lee and Xie Yu in Hong Kong and Megan Davis in New York; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)
