If you want a new job in equity capital markets, don't come to China, even if you speak Mandarin. A regulatory freeze on initial public offerings in the country is cooling hiring and cutting pay.
China's securities watchdog, the China Securities Regulatory Commission, put IPOs on ice in January to improve listing standards. It has not set a reinstatement date, but has asked underwriters for some 900 companies in a bulging listings pipeline to resubmit their clients' financial statements. It remains to be seen how newly appointed commission head Xiao Gang will approach the logjam. But the former Bank of China chairman is seen as a conservative, so don’t expect the IPO floodgates to open anytime soon.
“While 900 sounds like a big number, I don’t expect a boom this year because some will be forced to leave the pipeline. Companies need to check with the regulators whether they actually still qualify,” said Jimmy Leung, China banking and capital markets leader at PricewaterhouseCoopers. He added that the government was trying to cool down the property market and might not want so many listings of companies in that sector.
Hiring in ECM at investment banks is subdued. “The IPO market won’t be strong enough in the near future to warrant many extra staff. Bankers who were working on, for example, four IPOs in the past will now be doing just two, with more time spent on building client relationships,” Leung said. Securities companies in China earned 17.55 billion yuan ($2.8 billion) from underwriting fees in 2012, the lowest since 2009, according to the Securities Association of China.
Alistair Ramsbottom, managing director of Shanghai search firm The Blacklock Group, ruled out “aggressive recruitment” in ECM this year. Vacancies were mainly cropping up to replace people who had left, added Monica Song, managing consultant, banking and financial services at recruiters Hudson in Shanghai.
But the IPO freeze may make bankers keener to jump ship. “Companies who joined the IPO pipeline two or three years ago could now appoint different banks to act for them on their reapplication, which could make some bankers want to move to the banks picking up this work,” Leung explained.
JPMorgan was hiring “selectively” in China, said Fang Fang, its Chinese investment banking unit head in a Bloomberg interview earlier this month. The Wall Street bank would not provide further details. UBS, which tops the fee and deal-volume league tables in equity capital markets for foreign banks in China, was also open to taking on senior talent, said a Shanghai headhunter who asked not to be named. The firm would not comment.
Bloomberg has reported that compensation for managing directors at foreign banks in China has fallen as much as 60 percent since 2010. Leung said salaries and bonuses at international banks could be pushed down further this year as it would take banks more time to earn IPO fees from clients, he added. “Even when listings come back on later this year, the application process will be more vigorous and lengthier. Banks’ income could suffer in China because it’s a competitive, client-driven market.”
Local firms are cutting back, too. Guosen Securities, China Merchants Securities, Essence Securities, Zhong De Securities and China Investment Securities are among those cancelling annual bonus payments, freezing salaries or making layoffs this year, according to Reuters.