Big Wall Street and European banks are looking to slash budgets across Asia, as the emerging market promise is trumped by an urgent need to control costs.
From taxi and air fares and year-end parties to entire operational divisions and new country offices, little is sacred.
The age of headquarters in New York or London subsidizing investment banking expansion in Asia is giving way to a period of austerity - a shift the industry accepts is long-term, especially given a steep drop in Asia fee income late last year compared to the rest of the world.
The cost cutting goes beyond standard headcount reductions, scything deep inside banks, where whole product teams are being closed down, entire offices are under review, and travel and entertainment budgets are pared to the bone.
Hiring is sparse, with pressure from bank headquarters to first show results for those who joined in the past two years. Division heads are no longer chasing every deal, and instead have to be much more selective.
The heyday of just expanding and taking people wholesale is over, said Enid Yip, Asia Chief Executive at Swiss private bank Sarasin. People will have to start looking very closely at their own contribution to the P&L (profit and loss).
In Asia, estimated fee volumes slumped 43 percent in October-December, the biggest drop of any region, though the others were not far behind. With Asia excluding Japan accounting for only 15 percent of the global fee pool, any continued fall on last year's scale just damages the Asia proposition further.
Last year, a $1 billion deal turned into $300 million, if it went through at all. A $10 million fee suddenly became $1 million. We have to be more selective about where we put resources, said an Asia head at one U.S. investment bank.
Bank of America-Merrill Lynch is shedding a fifth of its investment banking managing directors in Asia this quarter, and is pooling some analysts and associates to respond to business that is critical, rather than have them in specific teams, sources have said.
Credit Suisse is closing its Taiwan fixed income operations, and Macquarie closed part of its equity derivatives division in Hong Kong in the fall.
Spanish bank BBVA, which was expanding rapidly until mid-last year, has cut about a third of its wholesale banking staff in Asia, and Morgan Stanley has chopped fixed-income jobs in Singapore and Hong Kong, sources told Reuters.
The abrupt exit of Jesse Bhattal from Japanese brokerage Nomura Holdings, announced this week, helps underscore the point. Bhattal led Lehman Brothers and Nomura at a time of heady expansion and leaves now when the growth period is ending.
GRAPHIC: Investment bank fees: http://r.reuters.com/ryf95s
Facing weak markets and tougher regulation, global banks have outlined plans to cut more than 125,000 jobs this year, according to a Reuters tally. Until recently, Asia had largely been untouched by the jobs axe.
Domestic Asian banks such as the top Chinese lenders, once held up as the ultimate growth story, are also seeing earnings slow, ratcheting up the pressure on them to rein in costs.
Globally, diversified banks are expected to report a 14 percent rise in earnings this year, according to Thomson Reuters Starmine data. Asian banks are expected to underperform that, with earnings rising only 8.5 percent.
While some investment banks with large commercial operations are seeing their share of Asia profits increase, most are running the rule over their operations, with research divisions, sales and trading desks and even country offices such as in India, South Korea and Taiwan under scrutiny, according to senior Asia bank executives interviewed by Reuters.
INDIA, TAIWAN ON RADAR
India, because of the number of banks operating there and the notoriously low fees paid, is a prime target for scaling down by Asia banks. Political dysfunction, slowing growth and a weaker rupee have forced some to re-examine their operations in a country that had been held up as the next growth story.
Estimated investment banking fees in India dropped by a third last year to $863 million, according to Thomson Reuters data. Asia was the worst performing region globally, down 12.5 percent in Asia Pacific, while fees in Europe and the Americas fell about 3 percent.
Asia-focused Standard Chartered has begun warning of slowing growth in India, which in 2010 was the bank's largest profit earner. It now lags behind Hong Kong and Singapore.
India is going to be slow by any benchmark over 2012, the bank's Asia CEO Jaspal Bindra told Reuters. There are mines out there, including the big 2014 elections, which will hopefully throw up a government that will have more authority in policy making.
Taiwan is also in banks' firing line, with an activist regulator, overbanked market and touchy companies happy to take banks to court at the slightest bit of irritation. A win by the independence-leaning Democratic Progressive Party in this week's presidential elections could worsen ties with China - and prompt banks to further look into their operations on the island.
Research departments, in particular, face cutbacks. They are in many cases the most public face of many investment banks, but tend to be a high cost with little clear effect on earnings.
They are also the most open to fractured ties with potential clients. HTC, the world's No.4 smartphone maker, is suing Citigroup's Taiwan unit, saying the bank published false information that triggered a fall in the company's shares.
Privately, many leading analysts say it's now increasingly difficult to convince their bosses to hire as trading volumes remain largely flat in Asia's major bourses such as Hong Kong and Tokyo.
Top Asian companies such as ICBC and PetroChina are covered by as many analysts as Apple, according to Thomson One Analytics, yet turnover in the iPhone and iPad maker's shares is more than 10 times that of ICBC.
Foreign banks have also felt the squeeze from Asian currencies weakening against the U.S. dollar. Most banks report their earnings in dollars. China saw investment banking fees slide by a quarter in 2011. Even developed economies like Japan and Singapore saw fees fall more than 12 percent, Thomson Reuters data show.
Three or four years ago, we could have argued for another India office, or maybe build up Manila, said the Hong Kong-based head of a division at a top Wall Street investment bank, who did not want to be named as he was not authorized to talk to the media.
The bar is much higher now. The idea of New York subsidizing Asia's growth is gone. The filter with which they assess our expansion requests is thicker.
By one estimate, salary raises for Hong Kong bankers outpace their peers in the City of London, with basic pay up 15 percent in 2011, compared to 12 percent in Britain, according to recruitment firm Astbury Marsden.
As fees decline, higher pay in Asia is harder to justify, unlike in recent years when strong capital markets kept business flowing throughout the year.
The squeeze on costs in the region is tightening.
Staff at Indian brokerage Religare Securities were told in a memo late last year that they could no longer claim taxi fares when working weekends. Managing directors at J.P. Morgan chipped in to help pay for the Hong Kong Christmas party.
Economy class flights are now mandatory on the popular Hong Kong to Singapore route at several banks.
Spokespeople at the banks declined to comment for this article on the specifics of their travel, entertainment or compensation policies.
Some investment bankers and executives interviewed said the return to a sharper focus, with tighter budgets, is probably a good thing.
I think there are more opportunities to be able to attract talented people without those superfluous payments that we had to make in the past when the market was very hot, said StanChart's Bindra.
(Editing by Ian Geoghegan)