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Hong Kong ECM bankers jumping boat as city braces for worst IPO market in almost 20 years

For an economy that relies so heavily on finance, an eye-watering 91% slump in Hong Kong’s initial public offerings thus far 2022 is enough to cause anxiety among the city’s investment bankers, who typically take home monthly salaries of HKD 100,000-HKD 150,000 (USD 12,744-USD 19,116) or above.

Worse still, there is no sign equity capital markets (ECM) will be out of the woods any time soon.

“There are no deals and the economy is grim – I have no idea how we’ll survive these markets,” says a European bank’s ECM banker. It is particularly worrisome – especially for the newer hires – as job cuts look inevitable after last year’s hiring binge, bankers note.

For ECM bankers that want to stay in investment banking, mergers and acquisitions (M&A) roles would be the closest switch. Alternatively, they could join boutique M&A advisory firms, consider corporate roles or private-equity (PE) positions.

Among the high-profile departures from Hong Kong’s ECM investment banking, Alex To recently quit as the co-head of Bank of America Corp’s Asia-Pacific investment banking team to join China-focused CDH Investments as its new CEO, per a Bloomberg
report. Ex-UBS Asia ECM head Hannah Malter joined buyout firm KKR in April following a 15-year stint at the Swiss bank, as reported by Citywire.

Some have instead decided to leave Hong Kong altogether. In February, Bank of America’s Asia-Pacific co-head of global capital markets, Craig Coben, retired, leaving Hong Kong for his hometown in London, according to an FT
report. JPMorgan’s Asia-Pacific head of cash equities and equity distribution, Ryan Holsheimer, moved to Sydney while its former ECM head, Francesco Lavatelli, moved to London, per the same report.

Hong Kong, which is competing with Chinese exchanges and to a certain extent Singapore for listings of Chinese companies, has printed only 35 IPOs for USD 2.6bn so far this year, barely one-tenth of the USD 28bn netted via 85 listings in the same period in 2021, according to Dealogic data.

In 2022, year to date (YTD), Hong Kong investment banks have netted USD 61m in fee revenue from managing IPOs, little more than one-tenth of the USD 542.15m raked in last year.

In total, Hong Kong investment banking fees have fallen across M&A, ECM, and debt capital markets (DCM). With just four months left in 2022, it is unlikely the gap will narrow much before the year-end.

To be fair, this is not a Hong Kong-specific phenomenon. The picture is equally bleak across Asia.

M&A roles, buyside opportunities offer better job stability

Some market observers maintain that M&A is less impacted by economic cycles. Growing complexity specific to each and every M&A deal helps ensure job stability, as bankers are obliged to stay until deals complete, a process that can take years in some cases.

Let’s not forget that corporates and PE buyers continue to review, select and purchase targets across the economic cycle, said an M&A advisor, who had previously worked as an ECM banker.

While Asia-Pacific core investment banking fees have seen a 30% reverse so far this year from last, M&A fees have enjoyed a 5% rise in the same period, according to data compiled by UBS.

“This year has been non-stop, to the point where I haven’t managed to take any time off,” said an associate at an M&A advisory firm.

Being on the buyside, there is more bargaining power and flexibility in transactions than sellers and deal advisors, said a PE investor and ex-corporate finance banker.

While quitting investment banking would mean a drop in income, especially when it comes to bonus payouts, there are not many choices out there given challenging market conditions, says a Hong Kong-listed company’s corporate finance head, formerly an ECM banker at a top-tier foreign investment bank.

Indeed, bonus payouts have fallen this year despite last year’s stellar performance, and salary increments have dropped to 20% this year from an average of 30% pre-Covid-19, says Yetta Chan, the manager in Banking & Financial Services at Randstad Hong Kong.

Salary cuts of up to 20% are also not unheard of, adds an investment banker at a northeast Asian bank.

“Job security is more important than bonuses now,” says a former investment banker, who recently joined a Chinese PE firm.

Small- and mid-sized investment banks have frozen hirings as markets soured into 2022, explains Chan.

“In my whole career, I haven’t seen the capital markets this bad,” says a second ECM banker at a Chinese firm.

And it’s only getting worse.