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.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
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.
Changing plans
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.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataDeutsche 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.
Disillusioned
investors
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.”
