The last month has demonstrated wealth management is far from immune from job cuts. Even the fastest growing parts of the industry in Asia have been affected, though as John Evans reports, in a region where demand for advisers has always outstripped supply, there is still room for some optimism.
Asia-Pacific, hitherto the fastest-growing part of the $100 trillion global wealth market, is increasingly being side-swiped by the destruction of the capital of many of the region’s wealthy as the financial crisis hits home.
Several wealth managers, including Deutsche Bank, Merrill Lynch and Citigroup, have moved to selectively cull their workforces across Asia, after previously gearing up for expected continued growth in Asia Pacific.
Huge losses among clients in Asia, particularly on structured products and other exotic investments, and growing signs that China’s economy is in free fall are leading a number of advisory firms to review their plans for the region.
In the latest layoffs, Deutsche Bank’s wealth arm is to cut as many as 70 jobs in Singapore and Hong Kong. This follows its shock €4 billion net loss in 2008 and the fall in net revenues from its private clients and asset management unit by 22 percent to €2 billion.
Deutsche had been one of the most aggressive hirers in Asia, poaching Ravi Raju from Citigroup in 2007 to head private wealth management regionally. Soon after he joined, Deutsche controversially hired an 18-strong team from Citi.
Marcel Kreis, managing director and head of private banking for Credit Suisse in Asia-Pacific, says the current crisis “definitely separates the wheat from the chaff” in private banking.
“In this environment, where revenues are under pressure, newcomers may have to review their strategy as the entry price for setting up private banking has just gone up significantly and you need to have a sizeable client and asset base to be profitable,” he told PBI.
Credit Suisse itself is still seeing solid inflows in Asia-Pacific, totalling more than CHF8 billion ($6.8 billion) as of the end of the third quarter of 2008. Kreis declares this represents a “strong vote of confidence and trust from our clients”.
Among other wealth managers to be rationalising, Merrill Lynch, now under the ownership of Bank of America (BofA), is laying off as many as 40 bankers in its DSP Merrill Lynch wealth management division in India.
The layoffs come after the resignation of Rahul Malhotra, head of Merrill Global Wealth Management’s Asia advisory operations, in the latest senior departure from the company since the BofA takeover. Malhotra joined Merrill in 2006, to lead a drive into the Indian wealth management market and other key Asian wealth sectors after previously spending more than 20 years with Citigroup.
A DSP Merrill spokesperson declined to comment in detail on the job cuts but noted that BofA expects to eliminate 30,000-35,000 positions over the next three years as it integrates the $50 billion acquisition of Merrill.
Merrill sources additionally attributed the layoffs to the slowing Indian economy and forecast that more posts will be lost. Late last year DSP Merrill, an Indian investment bank majority-owned by Merrill, laid off 20 people across businesses including structured finance, derivatives, fixed income, currency, commodities and the strategic risk group.
While Merrill does not disclose assets under management by geography, sources indicated that as of mid-2008, its global private client business in India managed $5 billion in assets across 1,300 wealthy families and companies, making it one of the strongest Merrill business lines in the country.
Citigroup announced at the year-end that it is cutting around 150 jobs across Asia, the biggest single headcount reduction in regional wealth management since the credit crisis erupted last year.
The Citi headcount reductions are part of plans announced by the US group to cut 52,000 staff globally by early next year in order to revive its fortunes.
Japan, where Citi has a large wealth operation, will not be affected. However, Citi may accept bids for its Nikko Cordial Securities arm when the US bank put the Japanese brokerage into a group of “non-core businesses” it hopes to shed, after announcing its wealth joint venture with Morgan Stanley.
The normally aggressive Barclays Wealth has also been adjusting staffing to slowing wealth accumulation, moving to eliminate 30 jobs in Singapore and Hong Kong. Barclays Wealth Intermediaries arm, which concentrated on financial advice to corporate customers, is being merged with the international private bank under the restructuring.
“It has been decided that the businesses of Wealth Intermediaries and International Private Bank will be brought together and provide a more integrated Barclays Wealth offering to our clients,” an official said in Singapore.
Barclays sources stressed that some of the 30 staff involved will be offered jobs within the international private bank.
The cuts come as globally, Barclays is to cut 2,100 jobs across its investment banking, investment and wealth management units, with around 500 jobs at risk in the wealth unit. The cutbacks reflect a cost-cutting drive by Barclays, particularly in investment banking which has seen plunging volumes as the recession strikes home. But the British bank insists that it was continuing to hire in markets in Asia where it still sees growth potential.
On the retreat
Although receiving little publicity, asset managers from the US and Europe that had been actively expanding in Asia are now on the retreat. Closedowns include the Asia investment desk of GSO Capital Partners, a $25 billion hedge fund. Another, Citadel Investment Group, has shut down its Tokyo office and cut staff throughout the rest of Asia.
Och-Ziff Capital Management Group has shaved staffing its Asia division while Carlyle Group shut down its Asian leveraged finance investment unit.
Up to now, wealth management has remained relatively immune to layoffs, unlike sister divisions in investment banking and financial trading. Overall, latest estimates show that, worldwide, some 90,000 banking jobs have been eliminated, excluding the latest Citi cuts.
Asia is also seeing general attrition in banks’ staffing levels. HSBC is planning big layoffs, announcing the cutting of 500 positions. Some 90 percent of this will be in Hong Kong. About 10 wealth management roles will go if the staff cannot be deployed elsewhere in the bank.
Singapore’s DBS Group, South-east Asia’s biggest bank by assets, is planning to reduce its overall workforce by six per cent, or 900 staff in order to reduce costs after reporting a slump in third quarter net profit.
In other signs of the growing souring of the Asian wealth party, both UBS and Merrill Lynch are being sued by clients over investment positions while across the region, clients are protesting to their banks over the performance of a variety of exotic vehicles marketed as structured products.
They include highly-leveraged ‘accumulator’ derivatives products, known as “I’ll Kill You Later” instruments by disillusioned Asian investors. The products allow clients to buy equities at an initial discount, but locks them into making subsequent purchases at the same price, over a longer time period. Clients who signed up to the products six months ago are now obliged to buy the stocks at levels significantly above their current market value.
There are signs that leading regional central banks, led by the Monetary Authority of Singapore, will move to toughen regulations governing products sold to clients.
Private bankers in turn defend their activities, saying that they have been responding to demand from performance-conscious Asian investors for high returns and a greater risk tolerance than traditional in Europe. What is clear is that portfolios across Asia have been decimated by the combination of plunging markets and exposure to bust products.
“I have heard of investors who have had 100 percent of their portfolios wiped out,” said Leonardo Drago, of the AL Wealth Partners advisory firm in Singapore.
UBS Singapore is being sued by an Indonesian couple for $8.6 million, which they allege was lost because of what they claim was an “unsuitable” foreign exchange product offered to them. Turniady Widjaja and his wife Rosemary, who have been private banking clients of UBS since 2005, lost the money last year on trades in currency derivatives, also a type of accumulator.
Merrill Lynch is involved in a dispute with a private banking client who is suing it in Jakarta for $90 million in damages for allegedly selling shares without his knowledge.
Merrill, in turn, is suing the client, Prem Harjani, the owner of a Jakarta-based investment bank, in a Singapore court in an effort to recoup $12 million that it says Harjani failed to repay.
What is also concerning private bankers is the potential for China’s economy to implode as world trade slows, bringing economic and political disruption in its wake. For the first time in seven years the galloping Chinese economy saw the year-on-year growth rate of Chinese exports dropping 17.2 per cent in 2008 as consumers in the West started to rein in spending.
Roman Scott, managing director of Calamander Capital, says there are “dreadful” signs emerging on the economy of Singapore – a litmus test of global trade. The closely-watched figures for the city-state’s non-oil domestic exports for December fell more than 20 percent, its third monthly contraction in a row.
“Given our view that Singapore is the world’s ‘canary in the coal mine’, trade and exports in the rest of the world will be following the same pattern very soon,” Scott asserts.
None the less, there’s still demand in Asia for senior private bankers, particularly those who can bring clients with them.
Identifying continued demand for advisory talent, Nigel Heap, managing director of recruiters Hays in Asia says that, across finance and the professions generally, “there has been a levelling of salaries and a levelling of salary expectations, with increases falling into more sustainable ranges. Bonuses too have become more sustainable as the focus shifts back to performance-based payments.”