The race for investment banking talent in Hong Kong and mainland China is forcing up compensation to record levels.
This week, HSBC’s chief financial officer Ewen Stevenson admitted that the bank may have to pay up as it looks to expand across Asia. “We may need to top up our current pool assumptions as the year progresses,” he told analysts on a call on April 27. “If we are seeing competitive pressure in areas like Asian wealth and investment banking more broadly, we have to be in a position to respond.”
Today, Bloomberg reports that HSBC has become the latest bank to increase pay for junior bankers in Hong Kong, London and the U.S., although it's not clear by how much.
In Asia, HSBCs’ investment bankers have just turned in a strong quarter, with revenues in capital markets and advisory rising more than 100%. They were the star performers in the global banking and markets division, where overall revenues fell 11% across Asia and by 23% in Hong Kong year-on-year.
HSBC cut its bonus pool in global banking in Asia last year, but this year it’s a brighter picture so far. During the first quarter, compensation spending at HSBC's investment bank in Hong Kong was up 20% year-on-year on the back of stronger revenues as well as increased investment in the region as the bank accelerates its ‘pivot to Asia’ under CEO Noel Quinn.
As well as relocating senior executives from London such as head of global banking Greg Guyett, HSBC has been one of the biggest recruiters of banking talent in the region so far, beefing up its sector banking expertise by hiring managing directors in technology as well as in healthcare and retail and consumer. But it has also suffered departures to rivals and corporates as competition for talent heats up
Sources say the bank was prevented from paying up for talent last year after it was forced to suspend its dividend by the UK Financial conduct Authority in the wake of the coronavirus pandemic. But now it is free to resume dividends, it is more competitively positioned in relation to US rivals.
That could help as it continues to search for a permanent replacement for Peter Enns, who quit last year as global co-head of the bank’s advisory and investment banking coverage effort to become CFO of Chubb Insurance. The bank has appointed Jason Rynbeck, vice chairman of global banking and vice-chairman of the bank’s mergers and acquisitions (M&A) business in Asia, to take Enns’ role on an interim basis.
A combination of talent shortages, increased competition from Chinese banks and a strong bid from corporates is creating a bidding war for the Hong Kong's best bankers.
Western banks are building up their presence in mainland China while in Hong Kong, the focus is on M&A rainmakers and equity capital markets bankers.
“After lagging western firms in terms of pay, Chinese banks in Hong Kong are increasingly willing to offer compensation packages of US$1m,” said one senior banker at a western firm.
Meanwhile, a shortage of available talent in hot sectors such as technology and healthcare is forcing up pay in one of the most competitive recruitment markets in a decade. Corporates are also luring away bankers, with a number taking chief financial officer and internal M&A roles.
And as Stevenson acknowledged, a surge in capital markets and trading activity is likely to drive up bonus pools and make it more expensive for banks to keep their top performers happy.
Given the battle raging for senior talent, if HSBC can’t find a suitable external candidates to fill Enns’s shoes, Rynbeck, who is highly regarded throughout the industry, could perhaps be persuaded to take the role full-time.
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