On the face of it, Chinese banks appear to be an attractive career option if you’re looking for a debt capital markets (DCM) job in Hong Kong. But think carefully before you join one – while you may win more deals, you could end up with a poorly paid (and unstable) job.
Chinese banks might seem appealing to DCM bankers in Hong Kong because they have reigned supreme over regional league tables for the past couple of years. In Q1, mainland firms (China Securities, Haitong Securities, CITIC Securities, Guotai Junan Securities and Bank of China) took the top-five places for Asia (ex-Japan) DCM revenue, according to Dealogic. China is dominating the DCM market across Asia because its debt issuance has soared – and Chinese banks have cashed in as a result.
So what’s the catch? While Chinese banks have long undercut the underwriting fees of Western banks, they are now taking the practice to a whole new level as the market becomes increasingly competitive. The average charge for selling Chinese corporate bonds in 2007 was typically 1% or more of the deal size, according to Bloomberg. Last year it dropped to just 0.44% (compared with 0.6% in the US), and many deals paid 0.1% or less. As competition to win deals heats up, GF Securities earned a regulatory rebuke last month for offering to arrange a bond sale for a 0.0001% fee.
Winning more and more DCM deals may make senior executives look good in the relationship-driven world of mainland banking, but it’s not always great if you’re a rank-and-file DCM banker at a Chinese bank in Hong Kong (or in Beijing or Shanghai). As banks’ earnings are driven down by aggressive pricing, some have begun cutting DCM staff and reducing the pay of their existing bankers, according to Bloomberg.
As we reported in February, mainland IBs in Hong Kong already offer lower base pay (by about 30%) than global firms. Across the sector, VP-level bankers earn HK$1,720k a year on average, but for Chinese banks the figures falls to about HK$1,200k, for example.
“Chinese banks have in-depth relationships with one another. And they offer smaller fees compared with the foreign banks,” says investment banking headhunter Jason Tan. “The last DCM banker I interviewed for a job admitted that his bank would do a deal for ‘face’ with the client, even if it was loss making”, he adds.
Mainland banks aren’t hiring “superstar” MDs from the likes of Credit Suisse, UBS, Goldman Sachs and HSBC (the four global firms that make Dealogic’s Q1 DCM Asian top-10), says Tan. “They’re winning deals with low fees, so they can’t justify spending millions on senior people from Western banks.”
Image credit: filmlandscape, Getty
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