Chinese investment banks are ramping up their recruitment as they start to dominate revenue league tables in Asia, but poor compensation is stopping them poaching bankers from Western rivals.
In the first quarter of this year there were seven Chinese firms in the top 10 for Asia ex-Japan investment banking revenues, according to Dealogic figures. The five leading firms were all Chinese: CITIC Securities, China Securities, GF Securities, China International Capital Corp (CICC) and Guotai Junan Securities.
As their revenue holds up, Chinese investment banks are also growing their headcount in both the mainland and Hong Kong at a time when some Western firms are pulling back.
“Chinese banks are certainly hiring more than their international counterparts are – the focus in Asian investment banking remains relentlessly on China,” says ex-Jefferies trader Warwick Pearmund, now a senior consultant at search firm at Bo Le Associates in Hong Kong.
China ECM volume hit its highest first quarter total in 2016, raising $43.5bn, while China DCM came to $200.6bn, also a Q1 record and up 64% year on year, according to Dealogic. M&A enjoyed its second best start to a year, with $92.2bn in China outbound deals.
“Recruitment at Chinese investment banks is still steady. They can afford to look at expansionary hires due to the stability of deal flow in China,” says Jason Ne Win, principal consultant, front office, at recruitment firm Selby Jennings in Hong Kong.
Does this expansion mean Chinese IBs can now poach bankers at will from their Western competitors? Well, no.
“They are actively hiring, but predominantly from themselves, with only a few exceptions,” says Christian Brun, Asia managing partner at search firm Wellesley Partners.
The ‘exceptions’ are usually Mandarin speaking staff who’ve recently been cut from global firms such as Barclays that are downsizing in Asia. “The big Chinese players are talking to senior – director, MD – Mandarin speakers who can bring a rolodex,” says Pearmund.
A senior coverage banker from Barclays is, for example, in the process of moving to a Chinese IB, says another Hong Kong headhunter, who asked not to be named because of client confidentiality. “But she’s well-connected, senior, female, and speaks Mandarin – so she’s like gold dust.”
Laikee Tang, head of front office search at GRMSearch in Hong Kong, says bankers will only choose to leave international firms for Chinese ones in “certain isolated cases where there is a clear commitment to building a global business – CITIC/CLSA hiring Andrew Low from Macquarie, for example.”
Compensation is a key reason why more people aren’t shifting to mainland investment banks. Chinese firms typically offer clients lower fees than Western banks do – and they don’t always make as much money per deal.
“Pay and bonuses is the big sticking point when it comes to hiring,” says Pearmund from Bo Le Associates. “Chinese banks have been doing deals at cut price rates. They are massively undercutting international banks and their pay is also nowhere close to the global players.”
Bonuses equivalent to “a couple of months of salary” for senior bankers don’t help either, adds Pearmund. By contrast, at director and MD level in Hong Kong good performers at US and European banks enjoy bonuses in the 80% to 130% range.
“With the exception of CICC, Chinese banks pay poorly – lower base salaries and much lower bonuses – and aren’t good places to work,” says Brun from Wellesley Partners. “Qualitatively in every way they are a long way behind the global banks and it will take many years for them to get close, especially as cross-border deals are becoming more important. Again, CICC is an exception.”
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