AWSJ(11/26) Investment Banks In Asia Detect Signs Of Rebound
November 25, 2001
Dow Jones Newswires
By SARA WEBB
Staff Reporter
SINGAPORE -- Talk about a change in sentiment. Investment banks in Asia may be busy laying off staff, but deals are starting to pick up, fueling optimism that the worst for the industry could be over.
Financial-services companies have been cutting jobs and retrenching furiously across the region, and it's those job losses that have been making the headlines. But with so many deals put on hold after the Sept. 11 terrorist attacks in the U.S., some investment bankers say the first half of next year could turn out to be a strong one, due to the big backlog.
Low interest rates have prompted Asian companies to launch a slew of bond offerings, while the recent rebound of more than 20% in stock markets in the U.S. and in parts of Asia has encouraged bankers to revive several equity offerings that had been put on hold. In addition, investment bankers say they are optimistic about the outlook for mergers and acquisitions, and for advisory work in the region.
"People are definitely less pessimistic now" than a month or two ago, says a senior Hong Kong-based investment banker at a global bank.
Another banker, Goldman Sachs Asia President Richard Gnodde, says that with so many of those backed-up deals now in the pipeline, Goldman is expecting next year's first half to be one of its best ever in the Asian-Pacific region, assuming market conditions remain stable.
To be sure, that's little comfort to the hundreds of investment bankers, analysts, sales officers and other financial-sector workers thrown out of work lately.
And several Asian stock markets -- such as Thailand, Indonesia and the Philippines -- have fallen off the radar screen of many international fund managers, because of their very low weightings in the most widely tracked global stock indexes. The trading volumes in several of those markets have been low for much of the past year, which means lower fees for brokerage firms and ultimately less money to support the cost of research analysts and other staff.
The result has been a noticeable scaling back in several business and geographical areas by some of the global financial-services firms in the region. Take the case of Merrill Lynch & Co., which this month cut some 25% of its investment-banking team in the Asian-Pacific region. When Merrill acquired brokerage firm Smith New Court PLC in 1995, it gained a much stronger presence in the region, including in several of the more exotic emerging markets. But as emerging markets and Asian stocks fell out of favor, Merrill scaled back: This year it sold its Philippine operations in a management buyout. People familiar with the situation say Merrill has considered various options for its operations in Indonesia and Thailand, including selling its stakes, but Merrill officials declined to comment.
Merrill's decision that it had too many people in Asia was hardly unique. "I'd say during the dot-com boom a lot of people got overstaffed, especially with juniors," says one head of equity capital markets in Hong Kong for a global bank.
Asia can be an expensive region in which to hire staff, particularly if specific language skills are a must. Banks in Asia don't make as much revenue per capita as in Europe and the U.S., this banker says. Even though the fees on big equity deals and on mergers-and-acquisitions work "can be incredibly lucrative, while bonds tend to be lower-margin," fees still tend to be juicier in Europe and the U.S., says the banker. No wonder the focus has shifted away from the Asian-Pacific region, where overheads remain high.
The list of casualties has been growing longer by the week. Last week, Indosuez W.I. Carr Securities announced the closure of its brokerage businesses in Asia, with the exception of Japan, a move that resulted in 350 lost jobs. Meanwhile, HSBC Holdings PLC has closed its equities brokerage operations in Jakarta and Manila, while scaling back its corporate-finance business in Bangkok. ABN-Amro Holding NV closed its equities business in Tokyo and laid off some of its research analysts in Asia outside of Japan. Singapore-based regional brokerage firm G.K. Goh Holdings Ltd. recently closed its office in the Philippines. And the consolidation in Singapore's commercial-banking sector is prompting layoffs in the city-state.
Similar cuts have occurred at Jardine Fleming's vast Asian network, which is now part of J.P. Morgan Chase. Gone is its Pakistan office, closed just before Sept. 11. The New Zealand office includes investment banking, but its local research work was shifted to Australia. The research and brokerage business in Sri Lanka was sold, and the office now handles only mergers and acquisitions and advisory. And in Thailand, the firm is in the process of selling its retail equities business, while keeping the institutional business.
The irony is that all this retrenchment comes as business may be picking up, although the main places likely to generate business are northeast Asia and Singapore. One source of good news for bankers has been the flurry of bond issues that have come to market to take advantage of extremely low interest rates. Following several interest-rate cuts by the U.S. Federal Reserve, borrowers can raise new money or refinance existing debt very cheaply in the bond markets. Among Singapore's big companies, Singapore Telecommunications Ltd., subway operator SMRT Corp. Ltd. and Singapore Airlines have together raised billions of dollars in the debt markets in the past couple of weeks, while Hong Kong's Pacific Century Cyberworks Ltd., or PCCW, also raised cheap debt.
"Investors are pretty cash-rich at the moment, and in Asia there's so much liquidity sloshing around the banking system," says Alan Greene, credit analyst at Barclays Capital in Singapore. He points out that both SingTel and PCCW increased the size of their bonds. "People realize that telcos aren't that bad, particularly if they have a strong position with a monopoly or strong duopoly," he says.
But it's not just debt that's picked up. Thailand last week successfully carried out the privatization of petroleum conglomerate PTT PCL, raising more than $700 million from both local and foreign investors. The Aluminum Corporation of China Ltd., or Chalco, the world's third-largest alumina refiner and China's largest primary aluminum producer, launched its US$380 million to US$480 million initial public offering last week to list in New York and Hong Kong. And still in the pipeline are the initial public offerings for Bank of China, Singapore Power Ltd. and PSA Corp., as well as deals for Hong Kong's MTR Corp., a Hong Kong listing for London-listed Standard Chartered Bank PLC, and various telecommunications deals.
There is also still plenty of advisory work around. The Indonesian Bank Restructuring Agency, for example, still has a lot of assets left to sell. And in Singapore, government-linked companies and local banks are seen as likely to generate plenty of business.
Yet for now, banks seem keen to hunker down and trim their headcount, and it's unlikely they will return to their previous size or geographical reach for another three to five years, predicts one senior investment banker.
"Investment banks are struggling globally and demand for staff has been very light in the fourth quarter," says headhunter Gary Thompson, senior partner at Singapore search firm The Consulting Partnership. "There's no pressure to hire today, but we expect there to be more demand in the first and second quarters of next year."
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