CIMB Group laid off 32 employees from its cash equities and investment banking divisions in Hong Kong on Friday, according to sources familiar with the matter, as it became the latest investment bank to cut jobs amid intense competition and a worsening climate for capital markets in Asia.
The Malaysian bank described the cuts as part of a three-year programme to restore earning growth by squeezing costs and making efficiencies, but not part of a gradual withdrawal from investment banking and equities in North Asia, one source said. The cuts represent 25 per cent of equities staff in Hong Kong.
The majority of layoffs were in the equity sales and sales trading department where revenues declined sharply amid intense competition, a source familiar with the situation told FinanceAsia. A number of investment bankers and several equities researchers were also involved, but the equity capital markets team in Hong Kong was unaffected.
“The group is not spared from the harsh realities of the deteriorating capital markets
faced by players with investment banking and equities businesses in Asia,” Zafrul Aziz, CIMB’s group chief executive, said in an email statement seen by FinanceAsia in response to the job cuts.
Lee Chee Khoon, its chief executive for North Asia, is not affected, though a number of senior bankers are understood to have been laid off.
A total of 110 bankers are left with CIMB’s investment banking and cash equities divisions in Hong Kong.
Deteriorating capital markets
CIMB has struggled to generate significant revenue from its investment banking and cash equities business since acquiring it from Royal Bank of Scotland in 2012.
In 2014, the bank made a pre-tax loss of M$21 million ($4.7 million) from the investment banking division, which includes corporate finance, institutional sales, retail equities, futures trading and research. That was down from a pre-tax profit of M$204 million in 2013, according to the group’s 2014 annual report.
Cash equities in Hong Kong have grown highly competitive since many Chinese banks and brokerages can provide equities trading support at low cost, industry sources say. They are able to drive sales and trading revenue by executing initial public offerings for their corporate clients.
CIMB is in a more difficult position because it lacks the relationships often needed to bring Chinese corporate clients, particularly state-owned companies, to list in Hong Kong. The bank’s also lacks the research capabilities to drive equities trading in the highly competitive market.
Target-18
Last year CIMB introduced initiatives to restore earnings growth after a disappointing 2014, when overall profit dropped for the first time since 2010. The three-year programme, known as Target-18, is aimed at improving regional efficiencies and sharing of resources across borders.
By the end of 2017, the bank plans to achieve targets including at least 15% return on equity (ROE), common equity tier 1 ratio of 11% and a cost-to-income ratio of around 50%.
To achieve this, it is looking to reduce annual expense in its Asia-Pacific investment banking and equities operations by 30%. This started last year with the closure of the Australia operations and a reduction of 40 people in North Asia equities in February last year.
As part of the cost-cutting programme, the bank also offered a scheme to allow voluntary departures for employees in Malaysia and Indonesia. A total of 1,891 employees in Malaysia and 1,708 in Indonesia left the bank through the programme in July last year.
Joining the ranks
The Malaysian bank is the latest victim of worsening capital markets that have seen a number of international investment banks in Asia cut equities jobs since the beginning of last year.
The wave started with Standard Chartered’s closure of its loss-making global cash equities, equity research and equity capital markets business in January last year, resulting in 200 job cuts mostly in Asia. The British bank subsequently shut down its equity derivatives and convertible bond businesses in October.
A number of senior bankers have departed from Jeffries, including regional chairman Sherry Liu and Asia president Ren Wang, since May last year. The New York-headquartered bank has laid off around 20 people in cash equities late last year as it refocused on more profitable corporate advisory business.
Barclays is also cutting jobs in Asia, with plans to reduce its 24-strong India equities business and sell its Asia wealth management unit.
CIMB’s latest job cuts are not a prelude for withdrawing from North Asia, but are instead measures to brace itself for tough times, the source familiar with the situation told FinanceAsia. The bank’s North Asia investment banking operations include Hong Kong, Taiwan, India and Korea.
“While such decisions are never easy, it is vital that we remain steadfast and continue to push our cost management agenda, realign our operating efficiencies and reshape our footprint strategically to allow us to focus on the priority areas that we have identified.” Aziz said in the statement.
