From 1993 to 1997, as the profitability of the Asian operations of financial firms exploded, so too the importance and size of their subsidiaries in Asia grew exponentially. The combined headcount of the 10 most significant western investment banking firms operating in Asia (including Morgan Stanley, Merrill Lynch, Goldman Sachs, SBC Warburg, Deutsche Morgan Grenfell) grew from under 3,000 in 1990 to over 15,000 by the middle of 1997. At the end of 1996, the global heads (yes, that's right, the actual heads of various global businesses, not just local branch managers) were beginning to be based in Asia. These were seriously important people, people for whom the cost of accommodation, salary and bonus was routinely measured in terms of millions of pounds (and in many cases in 1996, tens of millions of pounds).
Seriously important people surround themselves with large numbers of people who are on the way to becoming seriously important, and seriously wealthy. The best and the brightest were attracted to working in Asia, or becoming involved in business that focused on Asian securities. And as the business grew, so too did bonuses. For the past five years, bonus payments and expectations have mirrored the rise in regional stock markets and, as a group, the "Asian mafia" became one of the best paid in the industry. Until now that is. Just as markets and currencies across Asia have unexpectedly hit a brick wall, the "mafia" is running into problems of its own.
The ironic thing is that a great majority of investment houses have experienced record- breaking years in 1996 and 1997. Despite problems in Asia, the overall level of business has been extremely buoyant as Wall Street and the City of London has profited from a record-breaking bull run. Mergers and acquisitions activity alone is generating enormous fees, and stock exchanges from Paris to Frankfurt have provided commission income higher than expectations.
In a business where the expectation, negotiation and payment of bonuses mean that every month is "bonus" time, the first few months of the year are when the waiting is over, and for the first time that anyone can remember, expectant financiers involved in the Asian markets are going to be left out in the cold as their colleagues cash in.
One of the problems with being involved in Asia in the past few years is that one's sense of fallibility - an essential ingredient in working with financial markets, has tended to be displaced by things tending to go right too often. In many ways, the arrogance of the Korean and Thai industrialists who had no knowledge of a depression or a bear market, was parodied by imported financiers who served as the bridge between Eastern opportunity and Western capital. And just as newspapers and financial magazines have recently been full of stern comment by western investors who have gleefully jumped on the inadequacies of the Asian "tiger economies" that have finally shown that there is a "flip side to the coin", so too have executives based in London and New York started to highlight the rash risks taken by rivals in Asia, which has led to heavy losses in many cases. In this business, you're only as good as your last deal, and profits of yesteryear have been forgotten against the losses of this year. And as the months have passed, more and more chickens are coming home to roost.
Bank after bank, from Deutsche to UBS and Merrill to Bear Stearns, are counting the cost (sometimes in the full glare of public attention) of losses suffered as a result of the meltdown of markets across Asia. The sea of red ink that has erupted from this tumult has drowned more than just capital. It is taking with it the reputations, and in some cases the careers, of financiers who stood to rule as the next generation of chief executive officers and managing directors - many with a serious claim to the top job at ING Barings in the next few years have been sacked.
A real issue is that Asia really has always been different, and financial houses that had built a reputation and a standing based on conservatism and hard-nosed analysis on Wall Street and in the City of London, expanded in Asia by ignoring rules that have previously been sacrosanct. Underwriting decisions have been made where US houses have managed transactions and advised companies that would have struggled in Europe to make the grade, and yet month after month of profitable trading convinced managers that the rules really were different in Asia. It was difficult to argue against the lure of profits which seemed to just flow. It is entirely possible that apart from struggling with vast numbers of people who have been sacked, the "Asian" financier is going to find it difficult to find a job because he has been working in an environment that is different from any other; moving to other areas is not going to be easy.
Looking back now with the benefit of hindsight, a few horrible accidents did little to slow the pace of growth. Nick Leeson's episode at Barings accounted for the demise of a venerable institution in the City, but was seen as an example of bad management, not a symptom of the kind of pitfalls that were building up in Asia. The fact that Leeson's actions were engendered in the midst of the Asian bull market was circumstantial evidence that seems to have carried little weight in the overall analysis. And all along the way markets were heading, as we now know, for a massive fall that would see billions wiped off Asia's wealth and a destruction of currency values that ravaged decades of growth.
Losing one's bonus can be deemed a misfortune, but losing one's job and career at the same time is a heavy price to pay for being part of the Asian elite for a few years.
q Gianluca Ricardo is the pseudonym of a City executive.Reuse content