(Bloomberg Opinion) -- Investment bankers are facing another difficult year of shrinking opportunities and restrained pay, after global financial institutions capped the biggest round of job cuts since 2015. There’s one big exception: China.
Wall Street is engaged in a war for talent in the world’s second-largest economy as overseas banks, finally allowed to control their domestic operations, compete for a slice of the business serving the country’s growing ranks of ultra-rich. Banks are also gearing up to handle more business from foreign funds setting up shop in China, after index providers such as MSCI Inc. included more of the nation’s local-currency stocks and bonds in their global benchmarks.
The trouble is, there just aren’t enough bankers to go round. Goldman Sachs Group Inc. plans to double its headcount in China to 600 over the next five years, Cathy Chan of Bloomberg News reported Monday — a measure of the perceived opportunity at stake. Achieving that target may be easier than done, though: Many of its rivals have similar ambitions; the pool of financial professionals with the right combination of international experience and local-language skills is limited; and bigger Chinese employers hold most of the advantages for prospective employees.
All that adds up to a likely surge in Chinese investment banking salaries and bonuses this year.
Once focused on operating largely out of Hong Kong, many global banks are ramping up coverage in the mainland. New York-based JPMorgan Chase & Co. is planning to expand its office space in Shanghai Tower, China’s tallest skyscraper, by a third, Bloomberg News reported last week, citing people familiar with the matter. UBS Group AG, based in Zurich, has set its sights on doubling investment banking headcount in the next three to four years. Japan’s Nomura Holdings Inc. aims to have 500 employees by 2023 in China, where its initial goal is to build an operation serving wealthy clients onshore.
Citigroup Inc., meanwhile, plans to hire several hundred coders and data scientists to be based in Shanghai, as technology reshapes trading and investment banking worldwide. That’s part of a plan by the New York-based bank to add 2,500 programmers this year in its institutional clients group.
The expansions reflect the opening of China’s financial industry, with UBS, JPMorgan, and Nomura already setting up majority-owned securities ventures, while Goldman and others are awaiting approvals. In the past, they were restricted to joint ventures, which led to frequent clashes with domestic partners on everything from headcount to pay.
Hiring will be a challenge given the strength of homegrown institutions such as Citic Securities Co., China’s biggest brokerage. The country’s largest institutions have vast distribution networks and longstanding relationships with government officials that give them an inbuilt edge over foreign newcomers.
Fewer than a fifth of candidates that search firm Wellesley Partners tried to interview for positions at foreign banks were willing to even talk, Chief Executive Officer Christian Brun told Bloomberg News in July. Even promising higher salaries doesn’t always work because of big one-time commissions offered by Chinese banks that their overseas counterparts don’t allow. For example, a private banker can earn a commission if she makes an introduction that leads to a company going public.
That’s not to say that Western banks won’t make progress. January has already seen one trophy hire, with the veteran head of China’s largest private bank, China Merchants Bank Co., leaving the firm to join a foreign competitor, Alfred Liu of Bloomberg News reported Monday. Wang Jing had been with the bank, the nation’s largest manager for high net worth clients, for two decades.
Investment banking has been suffering since the global financial crisis, hit by low interest rates, tighter regulation and subdued trading volumes. The industry’s top banks shed more than 5,000 jobs in the four years through June 2019, according to data from Coalition Development Ltd. For those feeling the squeeze, this year’s best investment might be enrollment in a Mandarin class.
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Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
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