Investment banks seeking to expand in Chinese and Southeast Asian markets in recent years have paid bankers bigger bonuses and guarantees to compete in the region's tight talent pool. But as the promise of boundless Asian growth fades, those with established brands are putting a stop to steep pay packages.

"One of the things Asia has suffered from is the continued thought that it's the market of the future," says Rob Sivitilli, J.P. Morgan Chase & Co.'s Singapore-based head of corporate finance and M&A for Southeast Asia. That has driven global banks to aggressively recruit and pay up for bankers, he says. However, as Asian capital markets slow and the Asian M&A market remains in its early stages, banks are becoming "more disciplined" about hiring, Sivitilli adds. "We are not seeing banks offer large multiyear deals as they did before the financial crisis."

Up until mid-2010, a number of banks were paying guarantees to land talent in China and Southeast Asia, says Paul Aldrich, managing partner at recruiter CTPartners in Hong Kong. "In 2009, guarantees would have been paid by most organizations that were hiring [Asian] bankers. People were making money and it was a reasonably robust market." It was also a sellers' market. Due to the relative infancy of the region's investment banking industry, the talent pool was limited. Qualified bankers capitalized on this by demanding guaranteed bonuses, including, in some cases, multiyear packages.

Most guarantees were for one year, but a bank breaking into Asia in need of "game changers" might have offered "rare and reserved" two-year guarantees, Aldrich says. The most attractive packages were offered to highly sought-after bankers with a combination of local contacts and global capital markets expertise.

With business in the region booming, especially compared with the U.S., most banks could afford to pay up. Chinese and Southeast Asian investment banking revenue jumped from about $2.2 billion in 2008 to roughly $7.3 billion in 2010, according to Dealogic. That was reflected in bankers' pay. Bankers working in Asian markets after the crisis were paid 10% to 15% higher bonuses than their U.S. counterparts, says Shekhar Purohit, managing director at compensation consultancy Pearl Meyer & Partners LLC.

But in 2011, revenue slid to $5.9 billion, driven primarily by an equity capital markets downturn. As a result, some banks that invested in Asia can no longer afford to do so. Layoffs have occurred. "There will be a lot of talent on the market at all levels because of displacement," says an investment banking source. "What we are seeing is quite dramatic head-count reduction. In the old days Asia was sort of protected, but right now the banks are less inclined to ring-fence Asia."

Earlier this month, The Wall Street Journal reported that Nomura Holdings Inc., Citigroup Inc., Goldman, Sachs & Co. and Bank of America Corp. made small job cuts in Asia. One casualty: BofA's co-head of Asian M&A, Michael Cho, a source confirmed. BofA plans to lay off 15 of its 75 managing directors in Asia, the Financial Times reported this month. While Chinese and Southeast Asian layoffs haven't matched carnage in the U.S. and Europe, the supply-demand imbalance is shifting, and bankers seeking big bucks can no longer just look eastward.

Indeed, investment banking fees are typically lower in China and Southeast Asia than in the U.S., as global banks trying to enter the market have engaged in price cutting, says Sivitilli. Initial public offering underwriting fees are generally 30% to 40% lower than in the U.S., and M&A advisory fees are 10% to 20% less, he says. About two-thirds of investment banking activity in Southeast Asia and China comprise IPO and secondary offerings, while one-third is M&A advisory, he adds.

Still, Sivitilli says downward fee pressure "has stabilized over the last few years and might move in the other direction, as banks become a lot more reticent to take on deals just to build credentials." Purohit, however, argues that it's tough for global banks to push back on fees, noting that executives at many Asian companies "still don't have a global perspective and still may make decisions based on price." If they're dissatisfied with pricing, they will seek out lower-priced local banks.

The region's local banks have also proved to be fertile recruiting grounds for some smaller U.S. and European firms looking to bulk up. "Firms tend to look for someone who has done their undergraduate degree in the local market and their M.B.A. in the U.S. or Europe and worked for an international bank in the region," Aldrich says. People who worked for local companies in corporate development are also desirable.

Moelis & Co. recently hired Joseph Chow to head its new Beijing outpost. Chow was previously a managing partner at Beijing's CJC Partners Inc., where he advised on cross-border deals for Chinese companies. The China native also worked in New York at Citi and was CFO of Chinese telecom China Netcom Group Corp. (Hong Kong) Ltd. Similarly, Rothschild, which has been in China and Southeast Asia for about 40 years, has filled its Asian offices with bankers from "Chinese banks who are interested in more of an international flow," says Rothschild North America CEO Jim Lawrence.

Australia's Macquarie Group Ltd., which opened its first China office in 1995, tends to "hire local bankers from regional offices of global investment banks, supplemented occasionally with professionals from outside the region where skills, experience and relationships are relevant," says Richard Griffiths, head of Asia M&A, based in Hong Kong.

But according to Aldrich, many of the largest global banks poach from each other rather than from local players. There are only "one or two [local] banks in each market where you'll find talent that is transferable to a major global bank," he says. Barclays Capital, for example, began "paying up for good bankers from Morgan Stanley" to build an Asian cash equities and investment banking business after it acquired Lehman Brothers Inc., Aldrich says. In 2009, Barclays hired Morgan Stanley's Asian global capital markets chief Matthew Ginsburg to run Asia-Pacific investment banking and, in 2010, landed its former head of Asia-Pacific M&A, Ed King, in the same role.

Other big-bank poachers include BofA, which last year nabbed Matthew Koder from UBS to run investment banking Asia-Pacific, and Deutsche Bank AG, which in 2010 hired UBS's chairman of Asian investment banking, Henry Cai, as chairman of Asia corporate finance and head of the corporate and investment bank, China. They didn't necessarily have to guarantee big bonuses to do it. "Banks with big brands don't have to pay up because the expectation is if you work at that bank, you'll get business," says Purohit. Prestige is particularly important in China, and bankers there may forgo guarantees to land at a big name, he says.

Citi and Standard Chartered plc have earned standout reputations in China and Southeast Asia, says a source. Both made Asia "a predominant focus, have been there for a while now and are capitalizing on local market knowledge." Aldrich adds HSBC Holdings plc, J.P. Morgan, Deutsche Bank and Royal Bank of Scotland Group plc to that list. While these banks may find it easier to attract bankers, ideal candidates with local contacts and capital markets expertise are still relatively scarce. And most bankers with no ties to the Asian market need not apply.

Importing bankers from New York or Europe for Asian banking positions comes with added costs such as schooling, housing and travel expenses to cover regular visits home, says Aldrich. Western bankers seeking positions in Asian markets "have to have some kind of technical expertise that is missing or a wealth of deal expertise that offsets their lack of a local network," he says. If a banker is being hired for major cross-border deals, a local network is not as crucial, he says.

"There have been CVs coming out of the U.S. and Europe in the last few months, but if they don't have contacts and clients out here, it's a much harder transition," says Griffiths.