As the financial behemoth Deutsche Bank ruthlessly slashed its workforce around the world, staff at its equities-trading units in Hong Kong and Sydney were among the first to feel the axe. The bank plans on eliminating its equities division, reducing Euro6 billion (US$6.74 billion) in costs and cutting a fifth of its global workforce, amounting to 18,000 jobs. The move is, no doubt, driven by internal needs, but it also reflects a global trend. That is the declining importance in stock trading for big banks, along with shrinking stock markets in many major financial capitals.
An overhaul at Germany's biggest bank is long overdue. Many European banks, such as Hong Kong's own money printer Standard Chartered, have already undergone such restructuring in the aftermath of the global financial crisis more than a decade ago. The time of an all-purpose, one-stop-shop global bank, once pioneered by Citigroup under former chief executive Sandy Weill, is long past.
Deutsche Bank is a powerhouse in the fixed income business. Its equities and rates trading divisions have been operating at a loss. Dogged by financial scandals and anaemic profits, an overhaul is inevitable. The chief executive of Deutsche Bank, Christian Sewing, wants the financial establishment to be smaller, leaner and more focused. Exiting equities trading " the bank will maintain its capital market business, which helps companies list in stock markets and issue new shares " makes sense.
The number of listed companies in Germany is down by a third in the past decade. Since 1996, the peak year in the US stock market, the number has been halved to 4,300-plus. It is the same story at Canadian exchanges, which have for years suffered fewer IPOs and mass delistings. In Singapore, in the past five years, delistings have outnumbered listings.
One reason is the tidal wave of liquidity created by major central banks around the world to counter the economic downturn. The ultra-low interest rate environment makes raising capital in the stock market much less attractive for companies.
Meanwhile, as publicly traded companies, executives must satisfy increased demands for disclosure and transparency by regulators and outside investors. A boom in the private equity industry helps them raise capital away from public exchanges.
Hong Kong's equity market has yet to suffer the same fate. Each year, it remains the top or near the top in terms of the number of initial public offerings. That is thanks to the Chinese mainland. For all the well-justified criticisms of the local market, Hong Kong investors still enjoy great choices and opportunities. But perhaps the shrinking stock market trend is just a matter of time, even for Hong Kong.
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