The View | Goldman Sachs’ job cuts show investment banking has become a low margin business
Bankers in Asia are having to adjust to the new normal of lower pay packets as managing IPOs becomes just another commodity business
The world’s biggest IPO market has become permanently unprofitable and overcrowded with banks. Goldman Sachs is reportedly cutting almost 30 per cent of its investment banking positions in ex-Japan Asia representing about 100 jobs. The job reduction comes as the bank faces its worst Asia ranking in equity issuance since 2008, according to data compiled by Bloomberg.
These layoffs may represent a long-term view for Goldman and other bulge bracket banks in Asia. But then a bank’s idea of a long-term strategy is deal-to-deal and client-to-client. However, the entire listing business has changed way beyond its early days in China. Competitive forces are conspiring against big foreign banks.
If they join a boutique or mainland bank they’ll have to get by with hundreds of thousands of dollars in annual income where you once made millions
Hong Kong remained the world’s No 1 listings market in the first nine months as initial public offerings from companies in China moved it ahead of Shanghai and New York. But total capital raised in the stock market dropped 60 per cent year on year, according to Thomson Reuters data. Hong Kong was the world’s largest IPO market last year and from 2009 to 2011. But advisory fees have also deteriorated.
Twenty years ago, mainland Chinese clients had no choice but to use foreign, bulge bracket firms for global IPOs and listings in Hong Kong or the US. Those were heady early days in the economically important process of shifting China’s assets from public to private ownership (albeit still state controlled).
In 1997, China Telecom’s (since renamed China Mobile) US$4.2 billion IPO was a landmark privatisation and listing led by joint bookrunners CIIC and Goldman Sachs.
Goldman spent years and millions cultivating the deal relationships needed to win the mandate. China Telecom was the largest Chinese equity raising at the time. It represented an entirely new sector from China where mainland assets were injected into a listed vehicle. There were no other publicly listed telecom entities from China at that time.
