Trading commissions from some of its biggest erstwhile international clients – BlackRock Inc and Capital Group – have plunged, while more than half the revenue from its equities business now comes from selling derivatives to predominantly mainland Chinese clients, sources say. — Reuters
SHANGHAI: Citic Securities Co’s dream of going toe-to-toe with Wall Street’s powerhouses in global finance is fizzling over troubles at its once free-wheeling Hong Kong operations.
CLSA Ltd, acquired by Citic a decade ago to spearhead the Chinese broker’s international expansion, has seen more than 750 employees, or about a third of the staff, quit since 2021 after increasing clashes between its Beijing and Hong Kong workers, cuts in pay and budgets as well as management issues, said people familiar with the matter.
Trading commissions from some of its biggest erstwhile international clients – BlackRock Inc and Capital Group – have plunged, while more than half the revenue from its equities business now comes from selling derivatives to predominantly mainland Chinese clients, the people said, asking not to be named discussing private information.
International hiring by CLSA has stalled without final approval from Beijing, and the Covid pandemic and a crackdown on private enterprise in China have also thwarted ambitions.
“Given the geopolitical environment, the impact of zero-Covid and the domestic political changes in China, Citic probably has no other choice but to make CLSA more domestic-Chinese client focused,” said Chen Zhiwu, chair professor of finance at Hong Kong University.
“CLSA’s business is bound to shrink, whether they like it or not.”
Once the largest client-trading equity brokerage in Asia, CLSA was known for its top-rated, opinionated research. It has now been subsumed by its more staid, state-controlled parent, with meetings largely conducted in Mandarin and decisions handed down from Beijing.
The culture clash heated up in 2019 when CLSA’s top, mostly expat executives quit after being slammed over lavish pay and scant returns.
The firm, for sure, has also been hit by external turmoil. Hong Kong’s economy has been hammered by political upheaval and strict quarantine rules that have only been eased recently.
A years-long crackdown by Beijing on private enterprise has rocked markets and choked off dealmaking.
Expat bankers and other high-end talent have left in droves to escape the city’s Covid policies and its political transformation.
Spokespeople at CLSA, BlackRock and Capital Group all declined to comment.
While CLSA has been able to replenish its ranks to keep its Hong Kong headcount stable at about 2,000, the upheaval has dealt a blow to Citic’s ambitions of becoming China’s answer to global giants such as Goldman Sachs Group Inc.
A five-year plan to add about 110 people in Japan, Singapore and Europe has stalled without final approval from Beijing and netted only a handful of hires, one of the people said.
Beijing bosses have said CLSA should continue to hire and expand, but also in May imposed a hiring freeze in Hong Kong, one of the people said.
Raymond Tam, its chief executive officer for the Americas, left in October after almost four years in the role.
Founded by two expat journalists in 1986, CLSA made its name by melding western and Chinese expertise, epitomising the city’s colonial, laissez-faire past. That culture, which had helped it gain global clients, has largely vanished.
Citic has moved close to 200 people from Beijing to Hong Kong in the past two years, the people said.
Most of its new hires come from second and third-tier banks and mainland brokerages such as Shenwan Hongyuan Group Co and Haitong International Securities Group Ltd, the people said.
Many expats left during Covid as CLSA refused relocations, they added.
With almost all internal meetings now conducted in Mandarin, instead of English as before, the few remaining non-mainland senior executives, such as equities head Edward Park, are relying on translators to understand what’s being discussed, the people said.
In 2020, executives at the broker were for the first time ordered to participate in China’s five-year planning process, a blueprint that the Communist Party has used to guide the nation’s economy since the 1950s.
The transformation is hurting its business with international clients.
The firm’s Asian stock trading commissions from BlackRock fell about 30% in the first half of last year from the same period in 2019, even as the US firm boosted spending almost 40% on cash equity trading with its other brokerages, one of the people said.
Such commissions from Capital Group fell about 20% from 2020 when the trading was exceptionally active, another person familiar said.
The architect of CLSA’s transformation is Zhang Youjun, the powerful chairman of Citic. He ousted long-time CEO Jonathan Slone in 2019 and most of the top management followed him out the door. — Bloomberg
