Michael Cho, who peers describe as soft-spoken, was anything but that when FinanceAsia editors last met him. He was arguably one of the most passionate, fired up and animated bankers at our end-of-the-year awards pitch presentations in December, which is saying something as it is hardly a venue for the modest.
He was clearly brimming with pride about the role he and his team at Bank of America Merrill Lynch played as the lead financial adviser to Korea Exchange Bank and other creditor-turned-shareholders in Hyundai Engineering & Construction on the sale of a 34.9% stake in the company. What he came across as most proud of was how lucrative the deal was for BoA Merrill.
Evidently not enough — as the Asia co-head of mergers and acquisitions was laid off earlier this week.
Given the European debt crisis and continued global economic malaise, which translated to lower investment banking revenues last year, most investment banks are reviewing their strategies, pays and staffing levels in 2012. Industry experts are reporting that compensation at bulge-bracket firms may drop 20% to 60% this year.
And indeed, Reuters reported on Tuesday that Royal Bank of Scotland is likely to cut between 3,000 and 4,000 investment banking jobs as part of an overhaul of the business to be unveiled this week. An RBS spokeswoman in Hong Kong acknowledged yesterday that: “RBS confirmed in November we would adjust the size of our investment bank in line with changing market conditions. We will give an update on final decisions following consultation with our major shareholders.”
More cuts are clearly on the horizon. BoA Merrill may simply be first out of the gate in Asia. Including Cho, 15 managing directors from Asia (including Japan and Australia) are getting the axe. More than half of them were informed this week.
This is on top of departures from earlier in the summer, such as Andrew Cooper, the Asia-Pacific head of corporate finance and structured equity-linked capital markets, and Michael Luk, head of debt capital markets, who both resigned in August. And in September, BoA Merrill’s Southeast Asia head of corporate and investment banking, Tan Chong Lee, left the firm and joined Temasek.
“The target is to reduce MD headcount by about 15 by the end of the first quarter compared with November last year. Some will be by natural attrition and some will be let go,” said a source.
M&A FRONT
Cho, a 15-year Merrill Lynch veteran, became sole head of Asia M&A in May 2009 after the departure of his predecessor, Kalpana Desai, who then joined Macquarie Capital Advisers. But very quickly he found he had to share the glory.
In July 2010, BoA Merrill appointed Deutsche Bank’s David Killingback to head up M&A in Australia, and in October that year the bank hired Zhang Xiuping as his co-head of M&A for the rest of Asia — also from Deutsche Bank, where she had been head of M&A for China. Zhang started her investment banking career with J.P. Morgan in New York working in the global M&A group and had steadily climbed the ranks.
Yesterday, BoA Merrill said it was promoting Killingback to the sole head of M&A for Asia-Pacific ex-Japan, which suggests that Zhang is taking on a lesser role, though the bank was keen to downplay this.
“It had to be a tough decision, but the firm was clearly top-heavy,” said an insider.
“I think it shows their focus,” said another banker. “Zhang’s the one with the China connections and Australia/China is where you’re going to see the big resources deals.”
Cho, by contrast, was involved in prominent Korea deals. The banker added: “It was inevitable that we were going to see top bankers — even ones bringing in some money — getting axed.”
Inevitable, indeed. Back in September, chief executive officer Brian Moynihan announced a restructuring plan known internally as Project New BAC (not a reference to blood-alcohol concentration, but to Bank of America’s ticker on the New York Stock Exchange). The plan is to eliminate 30,000 jobs during the next few years as part of an effort to cut $5 billion from its annual costs by 2014.
Attrition and the elimination of unfilled roles will help to cut some of the bank’s staff costs, but that will only go so far — those 30,000 jobs can’t all be tellers in Detroit. To make the savings needed, more MDs may have to be axed.
That said, two insiders denied the cuts are part of Project New BAC, claiming instead that they are market-based — an argument that also reflects BoA Merrill’s bleak outlook for 2012.
No doubt, in due course these 15 cuts will be merged into that 30,000, once bean counters realise it’s easier to tally up all the departures into the ultimate cost-saving effort. While BoA Merrill declined to go on record on this point, a spokesman underscored that the market conditions of 2011 certainly warranted cutting back.
Rankings for investment banking fees are, in the words of one Asia CEO, “never spot-on, but are directionally accurate”. BoA Merrill ranked 11th for investment banking revenues in Asia ex-Japan in 2011, according to Dealogic, with $198 million in revenues, as opposed to Goldman Sachs, which topped the list with $350 million in revenues for 2011. This is down from $241 million in revenues assumed for 2010 for BoA Merrill, though to be fair it was ranked 11th in 2010 as well, and the top ranked firm that year was Morgan Stanley with $423 million in revenue, according to Dealogic.
As the cuts BoA Merrill are making include Japan and Australia, which is part of upper management’s remit out of Hong Kong, BoA Merrill executives pointed out that their revenues and rankings for this larger region remained about the same overall. In 2011, investment banking fees for BoA Merrill in Asia-Pacific (including Japan and including Australia) were $438 million, which put them at seventh in the fee pool league tables. This is only a slight decline of 5.6% from the $464 million it earned in 2010, when it also ranked seventh.
Even so, BoA Merrill is battling the perception that it is once again backing away from Asia at the first sign of trouble. Both firms have a history of cutting staff in the region during downturns — from the Asian financial crisis to the more recent crisis, staff have been slashed in Asia.
“We have aligned our investment banking business to ensure that we are best positioned in the countries, sectors, products and clients where business opportunities exist,” said a spokesman in response. “This has been both driven by a need to more efficiently utilise our existing resources and the reality of market conditions.”
Insiders say that Project New BAC, which has been underway for some time, was initially presented as a US lending-focused exercise. This may be why these cuts aren’t being lumped into that category — because BAC wasn’t supposed to be about Asia, and the firm has gone on record saying that it is committed to Asia and knows that the chatter in the marketplace is unkind. Better to say, then, that it’s about the market conditions even if revenues weren’t so bad.
