Morgan Stanley is restructuring its investment banking unit’s China country coverage away from the current model - in which bankers do not have sector-specific responsibilities - to one in which they will become part of the bank’s global sector desks, sources with direct knowledge of the changes confirm to Asiamoney PLUS.
The restructure was announced today (June 7).
Morgan Stanley would be among the first global investment banks to adopt such a model for China. The changes will affect approximately 20 bankers across Hong Kong and China, where the bank has representative offices in Beijing and Shanghai. Credit Suisse adopted a similar model in 2009, while banks including Bank of America-Merrill Lynch and Deutsche Bank are known to still have centralised China desks.
The restructure is notable given the size of Morgan Stanley’s China desk, which sources say is as much as double other global investment banks.
“Historically Morgan Stanley has had the biggest China team. To some extent it’s been more of a first mover in the market. This can have significance because it affects a very large team,” said one source close to the changes. “Everyone who is on the China team will be divided and then put into sector groups. Yesterday you may have been on the China coverage team, and today you’re another person on the real estate team.”
The bank is not looking to reduce headcount, well-placed sources add. The restructure will not involve the bank’s China joint venture (JV) Morgan Stanley Huaxin Securities Company.
Shifting priorities
Banks have historically had a more centralised China desk because building relationships is a key part of doing business in the Mainland. To facilitate this bankers are often hired for their cultural knowledge, language skills and personal relationships with high-level contacts in China, rather than specific sector expertise.
“Wouldn’t it be better to have a Chinese person with all this local knowledge, language skills and relationships understand the local power sector, too? It’s better than having two people: one person who knows the clients and one person who knows the sector,” said one banker with knowledge of the restructure.
This in turn may also create more opportunities for the bank at a time when China’s economy has softened.
China’s gross domestic product (GDP) dropped from 10.4% for the full year of 2010, to 9.3% in 2011, to 7.8% in 2012. Some banks have already cut their forecast for China’s GDP growth in 2013. RBS revised its GDP forecast to 7.8% from 8.4% in April, and J.P. Morgan cut its estimate to 7.6% from 7.8% in May.
To hedge against China’s market volatility, finance sources say Morgan Stanley’s bid to hone its China strength to boost sector-specific business could be a smart move.
“It really just means that the bank is going to end up having people more focused on sectors and then be more accountable for particular accounts rather than just generally running around trying to attract business,” said one source with knowledge of the changes. “It’s basically corralling resources, which makes sense.”
Morgan Stanley recently underlined the importance of China to its business by promoting Shane Zhang from his role as co-head of China investment banking to co-head of Asia Pacific investment banking in March.
A representative from Morgan Stanley confirmed the changes but declined to elaborate further.