Goldman pulling back investment banking operations in Asia
(30 September 2016 – Asia) Goldman Sachs is set to axe around a third of its investment bankers in Asia, as the market battles region-wide slowdown.
The move could mean that as many as 90 investment bankers across the region will be laid off over the next few months, according to people familiar with the bank’s plans, with the bulk of the cuts in Hong Kong and Singapore.
The cuts also mean that the New York-based bank is partially unstitching the Asian network it built up over the past 15 years, in the belief that having big teams of bankers on the ground in markets such as China and India would unlock opportunities.
However, profits have failed to flow as steadily as promised, with hubs such as Hong Kong now dominated by Chinese rivals. Mainland securities companies occupy seven of the top 10 positions in advising on Hong Kong initial public offerings this year, according to Bloomberg.
Bankers in Australasia and Japan are unaffected by Goldman’s headcount cuts, while departures in mainland China will be relatively few, the people said. The exact number of lay-offs is yet to be confirmed, but is likely to be at least one in every five among Goldman’s 300 bankers across the countries affected.
The bank declined to comment on the lay-offs, which were first reported by Reuters.
Goldman’s return on equity has dipped below 10 per cent in each of the past four quarters, as the bank has struggled to adapt to a combination of higher capital requirements and new regulations curbing risk-taking.
At the same time, clients such as hedge funds have lacked the conviction to put on big trades, hitting Goldman harder than rivals such as Citi and Bank of America, which depend more on “flow” business in foreign exchange and interest-rate hedging for multinational companies.
Goldman’s Wall Street rival, Morgan Stanley, has been squeezed by similar forces, prompting the arrival of an activist shareholder on its register. Analysts say that other banks that fail to take radical measures to boost profits could similarly find themselves targeted.
Executives have a strong personal interest in lifting returns. Goldman’s top trio — chief executive Lloyd Blankfein, chief operating officer Gary Cohn and chief financial officer Harvey Schwartz — need to achieve an average ROE of 11 per cent between 2016 and 2018 if they want to receive 100 per cent of their performance-linked pay. Such awards accounted for $7.4m of Mr Blankfein’s $23m package last year.
Goldman has already moved this year to make deeper cuts than the usual bottom 5 per cent of staff across the board.
Between the first and second quarters, Goldman’s total headcount dropped by a net 1,700, equivalent to about 7 per cent of staff. Harvey Schwartz, the bank’s chief financial officer, told analysts that the move should save $700m a year, or 5.5 per cent of last year’s payroll. The new round of cuts in Asia is separate from those earlier lay-offs.
The cuts come amid a regional slowdown that has seen revenues from initial public offerings, mergers and acquisitions and debt offerings all fall by double-digits this year, according to Dealogic.
Across Asia-Pacific excluding Japan, Goldman’s ranking for investment-banking revenue has dropped to eighth so far this year, according to Dealogic. At the same point a year earlier the bank ranked fifth, and was first in 2014.
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