Job cuts, retrenchment and attrition are the words that strike fear in the hearts of those working in financial institutions these days. Bankers in Singapore are going through a difficult time, with a slowdown in economic activity in the region resulting in diminishing deal flows. According to a recent Reuters report, the total value of merger and acquisitions transactions in the Asia-Pacific region in the current year stands at US$572.9bil. Compared to the same period last year, the value of mergers and acquisitions deals stood at US$745.7bil. The almost $180 billion contraction has led to many layoffs in the recent year. ANZ, Goldman Sachs amongst others are all taking steps to lay off their employees not just in Singapore. Banks in other key Asian financial markets namely Japan, Hong Kong are trimming down.
There have been a large number of cutbacks in the industry during recent times. Bloomberg reported that Tudor Investment, a hedge fund founded by billionaire Paul Tudor Jones closed town it’s trading desk in Singapore after a global shake-up. Goldman Sachs is also facing the heat as it looks forward to cutting almost 30% of its 300 investment banking jobs in Asia (except Japan) because of a slowdown in economic activities, reported Reuters. ANZ Banking group has also cut down staff from 2,200 to 1,900 in the span of a year. One of the key reasons to this might be the rise of Chinese investment banks which are becoming increasingly aggressive in capturing market share.
China’s significant growth:
A study by Dealogic, a financial market analytics and technology firm found that the top 5 investment banks in the whole of Asia region (excluding Japan) are Chinese. The same study also revealed that out of the 12 largest merger & acquisition firms in Asia, 8 are Chinese with Goldman Sachs at the top position as reported in 2014. The main reason why Singapore investment banks are suffering is because the volume available for business in this particular region has dropped. “While there is a certain amount of M&A activity in China, this is being snapped up by Chinese investment banks,” reported Yahoo Finance Singapore.
China Citic Bank International, a subsidiary of Citic Bank, which is based in Beijing, said that it would move away from its traditional commercial banking activities and concentrate on its securities and corporate finance advisory business. Chinese investment banks are also starting to gain a foothold in merger & acquisition activities in China. At the same time, Wall Street Journal also reported that Beijing is considering allowing Wall Street Firms such as JP Morgan Chase & Co. and Goldman Sachs Group Inc. to operate investment banking businesses on their own in the region to get more access to China’s so-far insular domestic market. They are seeing this move as a part of the new U.S.-China trade and investment framework.
Global Investment banking business shrinking?
The world’s leading investment banks have not been able to halt the downward slide of their revenues and profits. The industry as a whole has been recording declining margins for the last five years. The Boston Consulting Group’s report, “Global Capital Markets 2016, reveals that revenue from trading in fixed income, currencies, and commodities has been falling. Income from primary market activities has also been shrinking.”
As the world’s leading investment banks have not been able to stop their declining revenues and profits,the industry as a whole has been recording declining margins since the last five years, reported Yahoo Finance SG. A report by Boston Consulting Group on Global Capital Markets in 2016 states that the revenue from trading in fixed income, currencies and commodities has been falling, and income coming from primary market activities has also been shrinking.
The only area to show an increase in revenue is from equities, which received a boost from stock market volatility. But, looking at the current market conditions following Brexit and the U.S. Presidential elections, it’s going to be very hard to make a proper call on what the market might have to offer. So, the big question that comes is will Singapore’s investment banks see a turnaround?
Yahoo Finance also reported that muted M&A activity alongside an economic slowdown also indicates that investment banks will continue to face growth challenges. This muted sentiment is further underpinned with the recent 1MDB scandal which saw Monetary Authority of SIngapore order the closure of Falcon Bank and BSI bank. They reported, “There is no sign of a revival in the IPO market in Singapore. Trading activity is down because of stagnant commodity prices and the lack of demand from China.” As far as the short term future of Singapore in investment banking is concerned, it might face a dim future. But, in the long run, Singapore may still be ideally positioned because of its excellent infrastructure facilities and stable political system. Though it might take some time for an economic turnaround, Singapore being Asia’s biggest financial hub should see growth in the investment banking sector soon.
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