Bonuses at global investment banks in Hong Kong are tipped to tumble by as much as 50% year on year for 2018.
M&A bankers could potentially be worst hit, with average bonus payments across Western banks in Hong Kong likely to be about half what they were for 2017, says Bethan Howell, a team lead in corporate and investment banking at recruiters Selby Jennings. “It’s not a pipeline issue, but there haven’t been as many M&A closures as we would expect across the year,” she adds.
Bankers can blame bad deal making in the first half. The value of China M&A, much of which is transacted via Hong Kong, fell by 18% in the first six months of 2018 to $348bn, according to PwC. Deteriorating trade relations between China and the US helped trigger a fall of almost 80% in the money spent by Chinese companies buying American assets, reports Reuters. Beijing, meanwhile, introduced new rules in March which formalise controls on speculative overseas investments.
Financial institutions group (FIG) bankers could be particularly unhappy with their 2018 bonuses, most of which are paid out after Chinese New Year. Mergers and acquisitions where Hong Kong financial firms are targets are expected to fall to their lowest level in 13 years in 2018, according to Reuters.
There are some bright spots, however, with bonuses in the hot sectors of China technology and healthcare M&A likely to be about the same as 2018, says John Mullally, director of Hong Kong financial services at recruiters Robert Walters. “Good China coverage bankers in these industries are always rewarded well. And for these bankers, bonuses are as much about who banks want to keep in 2019 as about 2018 performance,” he adds.
Your M&A bonus in Hong Kong also depends on which bank you work for. Goldman Sachs and JP Morgan bankers are likely to escape the worst of the downward trend in M&A bonuses, says a Hong Kong headhunter who asked not to be named. Goldman and JPM rose up the rankings year on year to finish first and second, respectively, for Asia (ex-Japan) M&A revenue by bank for the first nine months, according to Dealogic.
It’s not just in M&A that US firms are expected to offer the best 2018 bonuses among global firms in Hong Kong. “US banks will pay more than the Europeans as they’ve generally completed more deals this year,” says Stanley Soh, a Hong Kong-based regional country director of financial services solutions in Asia. “There’s a lot of uncertainty within some European banks globally, which can affect their bonus pool in Asia,” says Sandeep Mohanan, senior manager for front office at recruiters Morgan McKinley.
"In particular, bonuses at Deutsche Bank won't be close to those of the top US banks in Hong Kong," adds the anonymous headhunter. Deutsche did not make Dealogic's top 10 banks for Asia (ex-Japan) IB revenue for the first nine months.
Goldman Sachs also tops the charts for Asia (ex-Japan) ECM revenue for the year to end-September, with Morgan Stanley second. But these firms are outliers, say recruiters. Across the market, ECM bonuses are expected to be down by about 30%, according to Howell from Selby Jennings. Although Hong Kong has enjoyed a bumper year for IPOs, banks’ caution around bonuses may reflect fears that the listings bubble will burst in 2019 and that many recent high- profile offerings have produced poor returns for investors.
Howell says DCM bonuses could be down by a third. “Earlier this year, interest rate hikes from the Fed and the strengthening US dollar pulled funds from Asia, which led to Asian bond issuers having to offer higher coupons to attract investors,” she adds.
Equity traders will likely see their bonuses fall, but only by about 10%, says Eunice Ng, director of headhunters Avanza Consulting. Hong Kong’s Hang Seng Index has been on the slide since January, party fuelled by US-China trade tensions creating uncertainty in the market. “Trading bonuses typically track the Heng Sang,” says Mullally from Robert Walters.
Across all banks and front-office job functions, however, one thing appears certain: the bonus gap between top rainmakers and rank-and-file bankers is still growing in Hong Kong. “Each year performance goals become tougher and banks make sure the high performers are very well looked after, despite any overall cuts in their bonus pool,” says Mullally. “Banks’ attitude is that other people can always just leave if they’re dissatisfied with their bonus.”
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