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 least March.
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 late August.
"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 reductions.
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