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HONG KONG (BLOOMBERG) – Hong Kong’s local investment bankers are rapidly losing their status as city negotiators, supplanted by rivals from mainland China who now hold most of the high-level positions in Asia’s largest financial center. .
While change has long seemed inevitable given the growing pool of talent from mainland China and the dominant role of Chinese issuers in Hong Kong, the recent pace of change has shaken even some industry veterans. They say it is partly explained by the reluctance of Chinese securities firms to hire and promote Hong Kongers after anti-government protests rocked the former British colony in 2019.
Locals’ share of investment banking jobs in the city has plummeted to around 30 percent from 40 percent two years ago, with 60 percent of the roles now filled by Continentals and 10 percent by foreign nationals, according to Robert Walters, a recruitment agency. company. The trend has been similar at the top echelons of the industry, with Continentals accounting for more than half of senior positions, estimates from executive search firm Wellesley show.
The numbers underscore the uncertain economic future facing even well-off Hong Kong residents, many of whom have prospered for decades by acting as financial intermediaries between a rising China and the rest of the world. While some in the industry have enjoyed relative stability in roles like commerce that are less reliant on customer relationships, those jobs may also be threatened as China makes it easy for global companies to bypass Hong Kong and directly access markets. internal.
“With such a large percentage of deals coming out of mainland China, it is understandable that many of those relationships are owned by mainland Chinese bankers,” said John Mullally, regional director for Robert Walters in Hong Kong. He said mainlanders made up only 15% of the industry 20 years ago, before widespread access to study abroad programs and other international experiences helped China narrow its skills gap with Hong Kong.
The new environment has hampered even some of Hong Kong’s most seasoned bankers.
Tse, a former managing director of large US and European investment banks who now works at a medium-sized brokerage in mainland China, said he has had a hard time breaking the inner circle of his new firm. His salary is roughly the same now as it was more than a decade ago, while mainland Chinese hires outnumber Hong Kongers four to one in their division.
“Most of the Hong Kong bankers, including me, are learning to follow the Chinese line,” said Tse, who asked that his full name not be used because he is not authorized to speak to the media. “The clashes and cultural differences remain immense.”
As the supply of bankers from the mainland has increased, salary packages across the city have shrunk. Compensation for senior positions has fallen 15-20% in the past five years, said Christian Brun, Wellesley’s CEO. Senior CEOs typically take home between $ 850,000 (S $ 1.15 million) and $ 1.75 million, up from $ 1 million to $ 2 million in 2015, according to a person familiar with the matter. which has several contracting mandates with large companies in the region.
And it’s not just Chinese companies in Hong Kong that are hiring on the mainland. Morgan Stanley has promoted about 15 mainland Chinese CEOs since 2016, compared with 11 Hong Kongers, according to company announcements analyzed by Bloomberg.
Goldman Sachs Group named three Chinese nationals to its most recent partner class in 2018, the most ever recorded in the country. The group included Wei Cai, the firm’s director of investment banking in China. The firm’s high-level promotions for Hong Kong residents in recent years have mainly occurred in areas that are less customer-oriented, such as commerce, research and support functions. Goldman Sachs and Morgan Stanley declined to comment.
“More than 90 percent of the searches we conduct in Hong Kong require at least fluency in Mandarin and a strong preference for candidates from the People’s Republic of China,” Brun said, referring to the People’s Republic of China, the country’s official name. That has also left fewer opportunities for expats from places like Britain and the United States, who accounted for just 7 percent of high-end hires in Asia at the eight largest investment banks in the region, Brun said.
Hong Kong people still hold some of the industry’s most prominent roles. Mark Leung is the Chief Executive Officer of China at JPMorgan Chase & Co and Pierre Chu is Co-Director of Mergers and Acquisitions China at Goldman Sachs. Several investment banking directors from China, including John Lee from UBS Group and Joe Lai from Credit Suisse Group, are also from Hong Kong.
While several of his high-profile peers have left the industry in recent years, they have mostly landed on their feet. Edward Lau, a former director of Deutsche Bank, is now a deputy financial controller at New World Development, one of Hong Kong’s largest real estate companies. Mervyn Chow, who ran Greater China for Credit Suisse, left investment giant Hillhouse Capital in 2018.
A potential advantage for local bankers is that they face a more favorable tax regime in Hong Kong than their mainland peers. China’s government recently began imposing a tax on the extraterritorial income of its citizens, a decision that could leave mainland bankers in Hong Kong paying triple the local rate, in addition to paying the bill for high costs of living. from the city. Some are already considering returning to China if their employers do not raise wages to offset the new tax.
The long-term risk for local Hong Kong bankers is that the city’s role as a financial center begins to wane. China’s imposition of a broad national security law in Hong Kong has blurred the lines between the two jurisdictions, and the threat of economically crippling sanctions from the Trump administration still looms over the city. Meanwhile, international companies have recently received the green light from Beijing to develop their operations on the mainland.
Morgan Stanley has already relocated 15 bankers and executives to its company in China from locations including Hong Kong. UBS has transferred about five employees from Hong Kong to Beijing, while Credit Suisse has transferred two executives to the Chinese capital to run its securities company.
It will be much cheaper for foreign banks to hire staff on the mainland, according to Eric Zhu, head of finance at recruiting firm Morgan McKinley. Employing a first-year analyst at a large company in China costs about $ 51,000, compared to $ 100,000 in Hong Kong, he said.
“The biggest influence on this trend came from the change in regulations that allow international firms to have control of their entities on land,” Brun said. “Everything else, including the Hong Kong protests, political turmoil and routine between the United States and China, just accelerates and concentrates the movement on the ground.”
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