EU and UK proposals which heavily regulate bankers’ remuneration could act as a gift to fast growing Asian financial centres.
The lure for institutions and individuals to relocate from the UK to Asia is very real and increasing all the time. For the past two years we have witnessed an expanding conveyor belt of talented bankers expressing a desire to relocate to the bright lights of Singapore and Hong Kong. And the attractiveness of Asia has grown even stronger in the last few months.
A climate of uncertainty undoubtedly pervades the market in London and Europe when it comes to banker remuneration. Many candidates fear political pressures will create an unattractive pay framework by limiting the cash component of bonuses and capping them to a multiple of annual salary.
Amongst UK recruiters, there is a concern that a revised FSA remuneration code may be onerous and will just serve to accelerate the pace of relocations. Whilst bank bashing may seem fun to the British media and public, neither the City or the wider UK economy are ready for the departure of their highest earners.
Feeling the pain
The proposed solution to cap bonuses may prove to be counterproductive as banks have continued to increase base pay as a staff retention mechanism. Increasing the fixed compensation element simply burdens banks with a less flexible cost structure. The ramifications of this could become horribly apparent in Europe if the global economy entered a double-dip recession.
Forcing banks to issue shares to staff in order to reduce the cash element of bonuses is likely to cost shareholders more as employees demand a far higher value in shares to make up for the uncertainty involved.
In reality, staff costs as a percentage of income at a bank in normal times are actually better than for many other service industries. Unfortunately, the EU proposals will just ignore and undermine that.
In response, large UK-based banks, through the forum of the British Bankers Association (BBA), are attempting to collectively reduce the amount they pay out at next bonus round. The BBC reported recently that the total bonus pool could be cut from 7bn to 4bn this year.
Whilst such a move is intended to placate politicians and the UK public, it could have a damaging effect on the large London-based banking community. Individuals may start to vote with their feet and move to Hong Kong and Singapore, where government and public pressure is less likely to restrict bonus pools.
The BBA is only too aware of this and in a written statement suggested that “it’s no secret that the major UK banks have sought for sometime to get an international agreement on bonuses”. British banks are rightly concerned that any forced cap on bonuses restricted to the UK could see an exodus to other major financial centres.
In stark contrast, positive news from Asia continues to feature prominently in the London
press. Last month, Standard Chartered’s intention to hire 4,000 staff was front page news in the City AM newspaper and was also reported in the Financial Times, ensuring the banking community over there is all too aware of the plethora of opportunities available in Asia.
And it is not just front-office candidates looking to escape the more onerous bonus restrictions. My firm has seen a 20 per cent increase in finance, operations, risk, governance and technology staff registering an interest in exploring opportunities in Hong Kong and Singapore over the last two quarters.
After 18 months of at times aggressive hiring, a number of firms in Hong Kong and Singapore are staring to conclude that they have exhausted the resident candidate population. One senior director in equities recently told me: “I’ve interviewed everyone in Asia. Send me candidates from the UK, Australia and the US”. This attitude is particularly prevalent in roles where exotic product knowledge is required.
It is too early to tell exactly what the ongoing affect of the political scrutiny on UK/EU bonuses will mean for Hong Kong and Singapore. But in the short term we can see from candidate registrations that the two locations are becoming more popular for European banking professionals than at any time during the last decade.
Julio Orr, consultant, Astbury Marsden, Hong Kong