China: ‘I’ has trouble with teams in HK

What a difference a year makes. Twelve months ago, the investment banking divisions of China’s largest lenders were pushing hard into Hong Kong, luring dealmakers away from top jobs at European and US employers.

Multilingual bankers fluent in Mandarin, English and Cantonese were taken away by institutions such as Industrial and Commercial Bank of China International (ICBCI) and China Construction Bank International (CCBI). These Chinese ‘I’ banks – so called because most add that letter to their acronym to lend them ‘international’ kudos – offered a blend of tempting benefits. First, money: banks such as ICBCI were willing to splash the cash to secure the right talent. This provided a tempting draw in a moribund market. Second, power: many ‘I’ banks promised to fast-track a career by awarding, at the very least, a chunky title-bump. Third, the future: mainland investment banks were on the rise, at least in Hong Kong, while many foreign rivals, still jaded from the financial crisis, were cutting rather than creating jobs. The attraction was clear.

But Chinese ‘I’ banks are suddenly shedding bankers at an alarming rate. Most started quietly leaking talent late last year. But since the turn of the year, the exodus has become impossible to ignore.

The worst pain has been felt at ICBCI – not the first but certainly the most prominent ‘I’ – perhaps because of the vast ambition of its Beijing-based parent. Over the past two years, it has managed to first hire then lose a large part of its investment banking team. ICBCI did not want to comment.

Since the start of the year, Ma Dongjun, ICBCI’s head of investment banking, and Gary Chan, its head of equity capital markets, have quit. Lance Chen, a trained lawyer, also brought a 17-month stint at ICBCI to a close, joining Baker McKenzie’s Hong Kong operations in January. Last November, Richard Yang, a well-regarded execution banker, was added to the payroll of Jefferies’ fast-growing Asia franchise.

Even non-Chinese bankers have fled, notably Alastair Campbell, who oversaw the bank’s European operations out of London. Campbell spent just 14 months at ICBCI before jumping ship in September 2012 to join independent Hong Kong investment bank Asian Capital Partners.

Nor is this hegira limited to ICBCI. In recent months Bank of China International (BOCI) – the original ‘I’ – has lost Daniel Ng, its vice-chairman of investment banking, as well as Andrew Wong, head of investment banking. BOCI was further hollowed out in 2012 when the veteran dealmaker Wang Yan departed to head Shenzhen-based China Merchants Securities, accompanied by an entire investment banking team.

Elsewhere, CCBI has lost most of the sales and research team it prised from the dead jaws of Bear Stearns, while Bank of Communications International is also suffering from its own, quiet brain drain, sources say.

China is hardly alone in struggling to create a clique of successful investment banks. There is an art to the process, requiring (among many other things) a surfeit of financial innovation and a lack of state interference, two areas where the country falls short.

Yet the rapidity with which China’s ‘’I’ banks have hit the wall has been staggering.

A Hong Kong-born origination expert who has worked at US and Chinese investment banks explains the difference. He says: “At Goldman Sachs or Morgan Stanley, everything is at your fingertips: good research and analysts, a strong equities platform, a network of bankers plugged in to what’s going on regionally and globally. At [Chinese] banks, a lot of this stuff isn’t there.”

But this isn’t just about resources. Beijing’s leading banks saw Hong Kong as their global gateway. Broadly speaking, their idea was simple: push hard into the city (at the expense of western banks), snap up talented bankers, secure mandates on equity offerings, and expand from there.

Yet no one factored in one of the leanest years in the history of Hong Kong’s capital markets. Few investment banks drew much profit from the former British colony in 2012, but China’s ‘I’ banks suffered more than most.

ICBCI has bounced around the nether regions of the league tables, placing 20th in Hong Kong’s ECM rankings in 2009 and 2011, and 13th and 12th respectively for the full years 2012 and 2010, according to data from Dealogic. BOCI slipped from sixth in 2010 to 10th last year. CCBI appears to have plateaued, ranking 15th or 16th in each of the last nine full quarters, as well as the current year to April 23.

The past year has been awful in other ways. As Hong Kong’s markets slowed, profit targets were missed, laying bare institutional and cultural divisions, and exacerbating the natural resentment that arises from unequal salaries. “Bankers [at group level in Beijing] were earning far less than us, and this made them bitter,” says a senior Hong Kong banker who left an ‘I’ in late 2012.

He recalls “the whispers, the innuendo, people positioning themselves to avoid blame, the witch hunts, the screaming episodes by your boss because he got screamed at by Beijing. It was insane at times.” Talk to most Hong Kong-based ‘I’ bankers and you hear the same stories.

And there is a further, damning legacy here. Investment bankers rarely extend their hand again after being bitten. Headhunters describe the verbal contortions involved in trying to convince anyone to work for a mainland investment bank.

“Every ‘I’ is going to struggle [to hire],” says a Hong Kong-based recruitment specialist. “You might be able to hire people who are desperate for work, who are willing to be pushed around in return for zero bonus. But in terms of extracting anyone sane from gainful employment at a foreign bank – forget it. The chance of any ‘I’ managing that now is next to nothing.”