Investment banks in Australia may have to cut jobs by the end of the year as a slowdown in deals crimps revenue by as much as 40 percent, said Royal Bank of Scotland Group Plc’s top local executive.
Stephen Williams, RBS’s country executive and head of global banking and markets, said banks that hired dealmakers with guaranteed pay packets, expecting markets to pick up, face most pressure. He said RBS has no firm plan to cut jobs in Australia, Asia Pacific’s third-biggest market for mergers and acquisitions this year according to Bloomberg data.
“They will find it increasingly difficult to pay individuals,” said Williams, 49. “The balance of the year is still going to be pretty slow. All of a sudden, we’re going to find ourselves in the last quarter, and then how do you deliver this year’s total revenues? There will be quite a lot of pressure in a number of houses on the cost base.”
Citigroup Inc. and Bank of America Corp. are among firms to have lured senior bankers from rivals in Australia this year following the busiest first four months of takeovers in at least a decade. Then a planned local resources tax stymied mining deals and Australia’s biggest initial public offering of the year was withdrawn as stock markets worldwide declined.
Williams said RBS, which is controlled by the U.K. government following a bailout, is on track to deliver this year’s revenue targets and aims to be a top-five investment bank in Australia. The firm, which has 640 local employees, has hired about 100 workers in the past 12 months, more than the number that has left, he said in the interview on July 21.
’’There are lots of mandates,’’ said Williams, who joined RBS in 1996. “Market conditions have just caused them to stall. Boards are probably finding it challenging to see compelling reasons to prosecute M&A in the current volatile market.”
Australia’s benchmark S&P/ASX 200 index has fallen for three straight months and the MSCI World Index sank 13 percent in the second quarter as Europe’s debt crisis threatened to spread and stall a global economic recovery.
German construction company Bilfinger Berger AG this month scrapped plans to list its Australian unit in what would have been the nation’s largest IPO since Myer Holdings Ltd. in October. RBS was among the banks managing the planned sale.
A super tax on Australian mineral profits, announced in May by then-Prime Minister Kevin Rudd, triggered a standoff between miners and the government, scuppered a proposed A$3.8 billion ($3.4 billion) takeover of Macarthur Coal Ltd. by Peabody Energy Corp., and helped lead to Rudd’s removal. Next month’s election called by his successor, Julia Gillard, won’t help matters, said Williams.
“It’s not necessarily going to give people a lot of confidence to move forward with a transaction,” he said. “We’re in for a very slow July and August.”
Jon Michel, who founded the Sydney-based financial recruitment company Jon Michel Executive Search in 1997, said he doesn’t expect layoffs by the end of the year.
“I don’t see such a drastic shift in hiring and firing in that space of time,” he said. “We’re still busy and have a pretty full orderbook.”
Foreign banks in Australia that may struggle to pay locked- in bonuses from this year’s revenue are more likely to go to offshore parents for a top up than fire bankers, he said.
Citigroup Inc.’s top executive in Australia, Stephen Roberts, said this week that it was tougher now to get deals done than any period he could recall. Roberts has been the New York-based firm’s most senior banker in the country since 2003. A pipeline of planned deals would remain unfulfilled for “a long time,” he said.
Three months earlier, Macquarie Group Ltd., Australia’s biggest investment bank, had said the outlook for domestic deals was improving. Citigroup in July hired Tony Osmond from Goldman Sachs JBWere Pty as head of investment banking in Australia.
Bank of America Corp.’s additions include ex-Deutsche Bank AG banker Henry Ayliffe in Australia and David Goffage, the former RBS equities banker. It hired David Killingback from Deutsche Bank to become head of mergers and acquisitions in Australia, the Australian newspaper reported July 22.
“I’ve been quite surprised at the extent to which some have invested in what they must have thought would be a continuing strong environment,” said Williams. “Are we overbanked? Probably, yes.”
Owned by the British government, RBS probably can’t match the guaranteed payouts that Australian rivals can promise to attract new hires, but the divide is narrowing, said Williams.
“The rest of the competition will have to align itself to the new world order,” he said. “We’ve seen our share of individuals who have moved on.”