Why a front office Singaporean core is important

Singapore-CBDAt a recent discussion, Deputy Prime Minister Tharman Shanmugaratnam reiterated the importance of banks in Singapore, particularly the foreign ones, to develop a “Singaporean core”. Besides having Singaporeans adequately represented in these banks, “it is also important that they take on a good spread of positions, including the best jobs in front office for treasury and trading”.

We only need to look at what’s happening in cities like London to know why this last bit about taking up “the best jobs in front office for treasury and trading” is so important. This is not simply about appeasing Singaporeans with fancy jobs and career development — it is vital to Singapore’s continuing status as a major financial centre.

In the past few years, the investment banking sector in London has been shrinking drastically. What you read about in the papers is the laying off of thousands of workers each time from almost all the major banks. What you don’t hear as much about is the massive offshoring that is going on at the same time. Offshoring used to be mainly in IT development and support to countries like India with the easy availability of low-cost, highly educated workforce, but these days it is no longer just about IT operations.

Some time ago, some banks in UK moved back-office settlements from London to lower cost cities such as Glasgow. Soon after, they realised they could do the same thing in India, but even more cheaply. So they shut down the settlements offices in Glasgow and moved them to India as well. After the financial crisis, cost cutting becomes even more important and banks started setting up offices in Mumbai, Chennai and Pune, as well as small cities in Poland, and moved as many functions as they can without affecting the front-line business.

Gradually, more and more middle-office support functions were moved, even those with close day-to-day interactions with the trading desks such as trade support/operations and finance/product control. What’s next? Likely more of the same, and possibly other areas such as (non-front office) risk and client services.

Besides specialist areas such as legal and compliance, the only functions really safe from being offshored are front office sales and trading (I’m only discussing this part of investment banking, and not IBD, capital markets or wealth management). That’s not to say it won’t happen, but if it does, it won’t be offshoring but an entire business entity relocation to a different financial centre. Since they trade EMEA markets in London, that will likely be to other European countries such as Switzerland or Germany instead of India.

According to the Monetary Authority of Singapore, the local financial sector employs about 6% of the total workforce in Singapore. Not only has this been growing consistently the past seven years, the sector is also punching above its weight, accounting for over 11% of GDP (as of 2011). But Mr Tharman knows as well as anyone working in the sector that, outside of our local banks, the majority of Singaporeans in these banks are working in middle and back office functions. Operations, finance and IT roles are especially prevalent.

What does this mean? It means that a Singaporean who has spent many years working in operations, for example, should be worried about losing his job to other countries. Maybe not this year or next, but in the years beyond. Those supporting head offices in Europe should be especially worried, because India and Poland offer not just lower cost, but friendlier time-zones as well.

Compared to other major financial centres such as New York, London and Hong Kong, it is likely Singapore has the lowest rate of locals taking up top jobs in front office and management of banks. It is having a continual cycle of locals taking up such jobs and rising to the top that allow foreign banks to sink roots in a city. We see that even with massive offshoring, high taxes and unprecedented regulatory pressure, top investment banks are not quitting London. Hundreds of thousands of jobs still remain, because you can’t completely do away with all the core and support functions even with offshoring.

There are many reasons why the banks are staying. But one reason is that the banks risk losing their talent, with a significant proportion of local British talent making up their managing directors and heads of trading. Besides, as top decision makers in these banks, many of these Brits may be resistant to moving due to family commitments. They will have no qualms moving support functions to a cheaper city, but are more likely to say no to moving entire head offices — and their families and themselves — abroad.

Therefore, with foreigners making up the bulk of trading desks and top management of foreign banks in Singapore while Singaporeans fill up the support roles, our country will be nothing but an interim stop until the next city with lower costs, ample manpower resources and ready infrastructure comes along. We will just be another Glasgow or Mumbai to these banks. Even a low tax, business friendly regime won’t help us then. That is why it is so important to build up this “Singaporean core”.