IFR Asia, December 2008

The banker is smiling but there’s an undercurrent of venom in his voice. “You won’t believe me, but our business has done exceptionally well recently,” he says. “Our revenue from Asia is well up year-on-year.” He lists four different areas of his bank’s franchise which have grown, not flagged, in the last 12 months. And then comes the inevitable postscript. “Of course, not that any of us are going to get paid for it…”

Every conversation with a banker in Asia these days seems to have that undertone. The subtext: we’ve done what we were supposed to do. We’ve worked hard. We’ve brought in business. But because of decisions somebody else made – and generally someone half a world away in New York or London – we’ll get no bonus this year, and we’ll very likely lose our jobs. Worse, we might lose our jobs in order to save the jobs of some of the fools in New York or London who put us in this mess in the first place.

Bankers are disappointed, worn down – and angry. And it just keeps getting worse, often on the whims of people who wouldn’t know an investment bank if it bit them (which, in a manner of speaking, it probably has). Asia-based employees of American banks looked on in horror as the House of Representatives voted down the first bailout package in September, precipitating a market plunge and a further erosion of bankers’ already hopelessly out-of-the-money options. They have swallowed hard as US congressmen have lobbied for banks to be made an example of, something that would lead to redundancies for bankers with families to support not just in New York or Connecticut but in Hong Kong, Singapore, Seoul, Mumbai. And they have shaken their heads as Hank Paulson has redrafted the bailout that did eventually get through the House, going back on the promise to purchase toxic assets – assets mainly bought in the first place by people in Europe and the States, not Asia. Employees here, powerless to do anything about it, and without any kind of voice or leverage over American politics, can only watch.

There’s even the injustice of the markets’ behaviour. As of November 21, Asian markets, at 61% off last year’s highs, have done notably worse than those in the US at 52%, despite the US being at the root of the problems. What happened to decoupling? Remember that magical idea that intra-Asian trade would be sufficiently strong to protect Asia from falls in other markets? And as Asian markets have been hit by the repatriation of foreign capital back to Europe and the US in a supposed flight to quality – is the UK or US growing at 8% a year like China? – the cycle has been getting depressingly worse. Grown men can be found swearing at their screens at the irrationality of credit default swap pricing, or the stubborn refusal of emerging market stocks to bounce.

The reshaping of the world financial services industry is also creating some friction, and perhaps the most potent example of this can be found at Nomura following the acquisition of the Lehman Brothers franchise in Asia.

This was fabulous news for Lehman employees and at the time people were genuinely pleased to hear that the 5,500 European and Asian employees affected would no longer be out of work. One minute they were not only out of a job but not at all sure if they’d even be paid for their last month’s work; the next, they were back in their original positions, on their existing deals.

And there’s the rub. The problem is, being an American investment bank, those existing deals were in many cases considerably better than those the existing Nomura staff were on. Nomura says it’s been shifting its remuneration policy to better represent the meritocratic eat-what-you-kill approaches of the Americans, but it’s a work in progress and, as one banker puts it, “there are plenty of people at Nomura who’ve been bringing in millions of dollars of business and are taking home US$100,000 a year.” The arrival of the Lehman people, earning more than they are, was always going to create friction.

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