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Western banks with operations in China are making their biggest investment-banking job cuts in years as a slowing market hits profits and halts years of expansion in the country.
The job cuts for 2023 come as five of the seven China securities units owned by Wall Street and European banks posted losses or saw profits plummet, according to recently released annual reports. The seven units employed 1,781 people last year, down 13% from 2022.
China’s capital market activity has been slowing as the economy weakens due to a long-term slump in the property market and rising geopolitical tensions between Washington and Beijing.
“Western investment banks are caught in a vicious cycle,” said Han Lin, China director at consultancy Asia Group. “Weak deal flow means less investment in domestic capacity, which in turn limits further deal flow.”
“Some banks are reaching the end of their patience as business opportunities in India, Southeast Asia and the US look more promising,” he said.
International financial groups have been able to take full control over mainland China brokerages since a series of regulatory changes in 2020. These units account for a small slice of the banks’ global profits, but the bank declined to comment.
Banks have cut more than 60,000 jobs worldwide in 2023 as fees plummet amid a drop in deals and initial public offerings. The declines in China contrast with early expectations that their business there would keep growing even as it slowed elsewhere.
JPMorgan Chief Executive Jamie Dimon said at a conference in May that some of its investment banking business in China had “dropped sharply.”
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Staff numbers had been growing fairly consistently since 2018. Even in 2020, department staff numbers fell by less than 3% as COVID-19 restrictions made hiring difficult.
Headcount at a Credit Suisse subsidiary that UBS bought last year fell 46 percent to 126 employees after UBS agreed to sell it to a state-run fund this month. UBS’s mainland China subsidiary’s headcount remained steady at 383 employees, making it the only one that didn’t cut jobs last year.
Morgan Stanley’s China unit posted its first loss since 2019, and JPMorgan’s China business saw profits fall 55% to 119 million yuan ($16 million). Morgan Stanley’s China unit said in its annual report that the environment was “challenging.”
JPMorgan and Deutsche Bank are cutting jobs much less than their rivals’ China subsidiaries, with Deutsche Bank holding just a 33% stake in their mainland joint venture, Sino-Japanese Securities.
Goldman Sachs China, which parted ways with its joint venture partner last year, recovered from a loss in 2022 but its profit of 193 million yuan was lower than any year since 2018.
The number of employees in its China securities division fell to 370 from 500 as the bank cut jobs around the world. Some employees were transferred to other parts of the bank, while some stayed with its former joint venture partner, Beijing Gaohua Securities, a spokesman said. Goldman Sachs had previously outlined plans to double its headcount in China to 600, the Financial Times reported in 2021.
Initial public offerings in China were worth just $8.3 billion as of May, the lowest for the same period since 2009, according to Dealogic data. Rules introduced last year require approval from Chinese regulators for overseas listings. Cross-border activity such as mergers and acquisitions also remains sluggish.
The investment-banking results may not paint a complete picture of banks’ China operations: Some banks have other divisions in China, many of which use relationships built through their mainland operations to generate revenue that is booked in Hong Kong and elsewhere.
The 2023 figures contrast with 2021, which was a record year for global investment banks, with six out of seven banks making profits from their mainland China operations.
HSBC’s mainland China branches bucked the trend and posted profits for the first time. “The momentum is driven by HSBC’s growing customer base and expanding product offerings,” a spokesman said.
