Asian bankers might just deserve their premium

March 2, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By John Foley

HONG KONG — Inequality rankles. HSBC has courted controversy by releasing figures that appear to show that its non-UK bankers, most of whom are based in Asia, were paid twice as much as their British counterparts in 2010. The reality may not be so stark, but bankers in the East do seem to be pocketing more. There is a case for arguing that they should.

HSBC’s disclosures for its 280 “code staff” show that average total pay for UK-based bankers last year was $1.2 million. But their non-UK colleagues took home an average of $2.6 million. The small sample may distort the picture, but the gap still exists: HSBC’s Asian bankers probably receive 25 percent more than their London-based counterparts. Factor in different tax rates, and take-home pay in Asia is close to double what it is in London.

Some premium makes sense. Although Asia accounts for just a fifth of the total investment banking fee pool, according to Thomson Reuters data, it is growing fast. Fees in Asia excluding Japan last year were 77 percent ahead of 2008’s trough. That’s significantly better than the Americas, where the fee pool grew just 22 percent, and Europe, where it shrank by 15 percent. This growth means the net present value to a bank of a well connected rainmaker or trader in Asia is higher than in more mature markets.

An industry wide hiring binge and uneven regulation pump things up further. Citi wants to more than double its Chinese headcount in three years. Nomura and Barclays Capital are jostling with newcomers like Samsung Securities, while bulge bracket firms like UBS, Deutsche Bank and Citi may have trimmed too much during the crisis. Moreover, Asian regulators have set no limits on pay practices. Multi-year guarantees, banned in London, are still prevalent.

In a world where bankers are mobile, supply should rise to meet demand. But this market won’t clear for some time. The top paid jobs demand special skills. Bilingual English-Mandarin speakers are growing in number, but don’t always have expertise in hot sectors like mining or equities trading. Until talent catches up — or growth slows — the Asia premium might be something bankers in other regions have to take on the chin.

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