Stan Chart's equities professionals horribly unaffordable at $500k per head
Should equities professionals everywhere be fearful of the spectacle at Standard Chartered? Having purchased Cazenove's Asian equities business along with 55 people back in 2008, it's now closing the business entirely.
It's not just those 55 ex-Caz people who are going. In the intervening years, Standard Chartered acquired an additional 150 equities sales, trading and research professionals, leaving 200 people to be cut globally as the bank dismembers its equities division.
This isn't the first time a bank has closed an entire business line - UBS famously pulled out of fixed income in 2012. Nor is it the first time a bank has closed its equities business - Unicredit took a scythe to European equities in 2011 and RBS closed its cash equities operations in 2012. But Stan Chart's withdrawal should provide food for thought for other equities professionals, especially at banks with a negligible market share.
"Standard Chartered's equities business has clearly been losing money," says Christopher Wheeler, an analyst at Atlantic Equities in London. "They employ 200 people and the Financial Times is reporting that the closure will lead to cost savings of $100m by 2016. That implies that the cost per head for each of Standard Chartered's equities professionals is $500k."
Chirantan Barua, an analyst at Bernstein Research in London, says Standard Chartered's equities business is 'marginal'. "It's a small business and a loss-making one...knocking it off for a struggling bank is a good move."
Wheeler says Stan Chart's move could signal a year in which other banks look hard at their equities businesses too. [efc_twitter text="Margins in cash equities are low and revenues per head are derisory"]- research firm Coalition puts them at around half of fixed income sales and trading and around 33% lower than in IBD. Nor is 2015 expected to be a great year for equities revenues - analysts at JPMorgan are predicting growth of just 3%.
Even so, Wheeler says some of Standard Chartered's problems were specific to Standard Chartered. The bank was heavily focused on the Asian equities market and was hoping to build a business on the back of Asian IPOs. However, even though 2014 was a boom year for IPOs in Asia, Standard Chartered was unable to penetrate the market, ranking a mere 23rd in 2014 according to Thomson Reuters. "Standard Chartered were coming from a long way back," says Wheeler. "They might have been ok if their other businesses had covered them, but Peter Sands had his back against the wall and something had to be done."
The moral of the story?[efc_twitter text=" If you work for a marginal equities business in 2015, be slightly afraid."] When you're trying to save money, $500k per head in seat costs is a non-negligible amount. With fixed income unable to subsidize loss-making areas, banks will be looking hard at whether equities professionals are making money in 2015. Last year, Barclays reached the conclusion that large parts of its loss-making Asian business weren't worth sustaining. This year, Standard Chartered has done the same. Who will be next?