(Corrects to clarify China Merchants and Citic Securities'
stance on staffing in paragraph 15)
By Elzio Barreto and Ken Wang
HONG KONG/BEIJING Jan 24 Chinese investment
banks are carrying out their biggest layoffs and bonus cuts
since the financial crisis as they brace for further profit
declines, hit by an ongoing drought in initial public offerings
in China that started in September.
The situation exposes the heavy reliance of investment banks
including Guosen Securities and Citic Securities on the China
IPO business. The banks were among the top fee earners in the
Asia-Pacific region outside Japan in the past decade as they
rode a boom in new Chinese listings.
Those banks now face the prospect of at least seven months
with no domestic IPO deals after regulators froze the approval
of new offerings, prompting some banks to reallocate staff to
focus on debt deals and on winning mandates for firms listed in
Shenzhen and Shanghai to also list in Hong Kong.
Against this backdrop, global rivals like Goldman Sachs
, Morgan Stanley and UBS look set to gain
market share because they have a bigger footprint in the region
and have more products to offer.
The China Securities Regulatory Commission ordered
investment banks and accounting firms this month to review the
financial statements of nearly 900 companies seeking to go
public in the country, in an effort to bolster the quality of
IPOs. The move extended its freeze on new listings until at
The country has already gone without any new listings since
Sept. 21, according to Thomson Reuters data. Shenzhen-based
Guosen Securities, which ranked first in managing IPOs in Asia
excluding Japan last year, has worked on no new offerings since
"It's going to be difficult and painful," said a banker with
a Chinese firm who was not authorised to speak publicly about
the matter. "You have way too many banks here and a lot of them
are losing money."
The layoffs and bonus reductions are the most severe for the
industry since 2009, according to multiple sources at investment
banks and executive search firms, who declined to be identified
because of the sensitivity of the matter. Industry statistics
were not available for Reuters to independently compare past job
The belt-tightening comes after a third straight year of
profit declines for Chinese securities companies on the back of
a slump in revenue from underwriting and sponsor fees, according
to the Securities Association of China. Companies earned 17.55
billion yuan ($2.8 billion) from those fees in 2012, the lowest
since 15.16 billion yuan in 2009, while profit for the entire
industry of 32.8 billion yuan ($5.3 billion) was less than the
$7.48 billion earned by Goldman Sachs alone last year.
Their dependence on new listings is stark. For example, 84
percent of Guosen's estimated equity capital market (ECM) fees
came from managing IPOs last year, compared with less than 10
percent for UBS, according to Thomson Reuters/Freeman
Guosen Securities, China Merchants Securities,
Essence Securities, Zhong De Securities and China Investment
Securities are among several firms cancelling annual bonus
payments for investment bankers, freezing salaries or aiming to
cut about 5 percent of total staff, sources told Reuters.
China International Capital Corp (CICC) is cutting around 5
percent of its staff as part of its regular policy of trimming
underperformers, but it has also stopped hiring. Citic
Securities is looking to shrink its
workforce by 5 percent to 10 percent, the sources added.
"Senior bankers will be most affected during this round of
layoffs," a banker at Citic Securities said. "Those bankers are
in danger as the company will not save jobs for idlers anymore."
CICC declined to comment. A spokesman for Guosen said market
speculation was baseless.
Investor relations officials at China Merchants and Citic
Securities said they were taking appropriate action in response
to the falling revenues. China Merchants said there is always a
system in place to eliminate underperformers, but it does not
plan to cut staff. Citic Securities said no big layoffs are in
the works, though it has already reduced salaries.
The other securities firms could not be reached for comment.
Stock issuance in China has taken off since 2004, when the
Small & Medium Enterprise (SME) and ChiNext boards were launched
in Shenzhen. Since then, 1,215 companies have gone public in
China, according to Thomson Reuters data.
By comparison, the United States, with a much larger and
more developed equities market, saw 1,435 companies go public
over the same period, while the UK had 1,142 and Japan 850.
The boom helped Chinese investment banks capture a 30
percent share of the Asia ex-Japan ECM fee pool last year,
compared with 3.4 percent in 2004. In IPO underwriting, Chinese
banks took 46 percent of all IPO fees in 2012, up from 4 percent
To offset the recent lacklustre IPO business, ECM bankers
have started working on debt deals. They are also looking to win
mandates to transfer so-called B-share companies listed in
Shanghai and Shenzhen to trade in Hong Kong, after the
successful listing of state-run container manufacturer China
International Marine Containers (Group) Co Ltd (CIMC)
"The competition is very fierce. A lot of banks have put
resources into this business," said a banker who helped arrange
($1 = 6.2198 Chinese yuan)
(Additional reporting by Samuel Shen in Shanghai; Reporting by
Elzio Barreto and Ken Wang of IFR; Editing by Denny Thomas and