Gurgaon: On the top floor of a seven-storeyed building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed-income and trading research for big-name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up around 40% this year alone.
“This is one bulge bracket bank,” said Joel Perlman, president of Copal Partners, pointing towards a team behind an opaque glass wall. “And this”, he said motioning across a narrow corridor, “is another”.
Processing knowledge: Equity researchers at Copal Partners’ office in Gurgaon, Haryana. Photograph: Zackary Canepari / NYT
The banks edit and add to what they get from Copal, a research provider, then repackage the information under their own names as research reports, pitch books and trading recommendations.
Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong—at their own offices, or to third parties.
Bank executives call this shift “knowledge process outsourcing”, or “high-value outsourcing”. It is affecting just about everyone—including Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase and Co., Credit Suisse Group and Citibank Inc., to name a few.
The jobs most affected so far are those with gruelling hours, traditionally done by fresh-faced business school graduates—research associates and junior bankers on deal-making teams—paid in the low- to mid-six figures.
Cost-cutting in New York and London has already been brutal, and there is more to come in the next few months. New York financial firms expect to hand out some $18 billion (Rs76,320 crore) less in pay and benefits this year than 2007, the largest one-year drop ever. Overall, US banks will cut a total of 200,000 employees by 2009, banking consultancy Celent had said in April.
The work these bankers were doing is not going away, though. Instead, jobs are popping up in places such as India and eastern Europe, where healthier local markets exist.
In addition to moving some lower-level banking and research positions to support bankers and analysts in New York and London, firms are shipping some of their top bankers to faster-growing developing markets to handle clients there.
Owing in part to credit weaknesses and billion-dollar charges from the subprime crisis, “people who were offshoring high-value jobs are increasing the intensity of that, and people who were not, are now in the planning stage”, said Andrew Power, a financial services partner at Deloitte Consulting Llp.
Wall Street banks started cautiously sending research jobs to India a few years ago, hiring employees by the handful and running pilot programmes with firms such as Copal, Office Tiger, Pipal Research and Tata Consultancy Services Ltd (TCS).
In 2003, JPMorgan and Morgan Stanley had said they planned to move a few dozen research jobs to Mumbai. Lehman Brothers Inc. was working on a pilot programme to create research presentations in India, and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country.
Five years later, the trickle is a flood. Third-party firms say they are seeing a 20-40% upswing in business this year alone. Morgan Stanley has about 500 people employed in India doing research and statistical analysis. Around 100 of Goldman Sachs’ 3,000 employees in Bangalore are working on investment research.
JPMorgan has 200 analysts in Mumbai working for its investment banking operations around the world, doing industry analysis, and compiling data and charts for marketing materials. It has an additional 125 analysts in Mumbai supporting the bank’s global research division.
Citigroup employs about 22,000 people in India, several hundred of which work in investment research. Deutsche Bank AG has 6,000 employees in India, according to its website. Deutsche started a pilot programme to outsource some research in 2003, and would not provide any update.
Theoretically, as much as 40% of the research-related jobs on Wall Street, tens of thousands of jobs, could be sent offshore, said Deloitte’s Power, though the reality will be less than that.
The jobs offshore are more likely to come from the investment bank and trading divisions of Wall Street firms, rather than the sales side, which produces analyst reports about companies and industries, said Andy Kessler, a former analyst who has written several books about Wall Street.
“There’s a huge amount of grunt work that has been done by $250,000-a-year Wharton MBAs,” Kessler said. “Some of that stuff, it’s natural to outsource it.” He added, “These are middle-of-the-office jobs, not back-office, but they’re not the people on the front line.”
After research, the next wave may include more sophisticated jobs, such as the creation of derivative products, quantitative trading models and sales jobs from the trading floors.
Proponents of the change say Wall Street’s wary embrace of the activity may signal the beginning of a profound shift in the way investment banks are structured, with everyone, but the top deal makers, client representatives and the bank management permanently relocated to cheaper locales such as India, the Philippines and eastern Europe.
In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close.
“Wall Street has to look at the world differently,” said Manoj Jain, chairman of Pipal Research, a 400-person firm with offices in Chicago, New Delhi and Gurgaon. Moving high-value jobs out of high-cost cities is “no longer a hypothesis”, he said.
Pipal has “more work than it can take” right now, Jain said, and is seeing new clients beyond US banks, such as investment management companies and European financial firms.
Like analysts at most offshore research operations, Pipal’s number crunchers do not make recommendations, or generally put their names to the research they write. Instead, they work with the big-name bank, or fund analyst to create the research they want.
Permanently moving banking jobs out of New York, or London is a touchy subject on Wall Street. Many investment banks—including Morgan Stanley, Goldman Sachs, Merrill Lynch and Citigroup— would not make executives available to discuss the topic.
Press officers for most banks asked not to be quoted, or argued over semantics. For example, one spokesman said his bank’s fast-growing India support operations are not an outsourcing facility, but a “centre of excellence”; another argued that large cost cuts at his bank’s New York and London headquarters were really “re-engineering” and, therefore, the bank should not be included in such an article.
“Some of that is self-serving,” Octavio Marenzi, chief executive of Celent, said of the impulse to keep quiet. “If I admit that research analysts can be offshored to India, that means that I could, too.” The “more advanced firms” will be able to use the cost differences and talent pools in India, and in the future in China, to their advantage, he added.
A few banks have openly embraced offshoring. Credit Suisse has 6,500 employees around the world working in lower-cost locations in India, Poland and Singapore. Of these, around 500 are doing high-value jobs.
“We have people helping the execution of deals, data gathering, helping to build financial models, writing research, and doing scenario analysis,” said Vineet Nagrani, head of KPO at Credit Suisse.
The bank has small teams working on fixed-income research, credit research and foreign exchange research, “all of which are going to grow”, Nagrani said. It’s also doubling the number of investment bankers and private bankers in India, who deal with local clients, in the next 12 months.
The bank’s clients, so far, seem happy. “As long as clients get a good quality product and can talk to their favourite research analyst”, they do not care if the grunt work is done in New York or India, Power said.
Third-party outsourcing firms face two hurdles when winning this business, N. Chandrasekaran, chief operating officer of TCS, said. First, banks need to be confident that third parties are capable of doing the work. Second, they need to decide if they want to move the work out of the bank at all.
To address the first issue, TCS sets up pilot programmes with clients. A new TCS office in Cincinnati, which will employ 1,000 people in three years, is intended to give the company a US presence.
In addition to growth outside India, these outsourcing experts are bringing in Chinese nationals, Arabic speakers and even the very people they are replacing: business school graduates from the US.
Daniel Peng, who will be a senior at Dartmouth next year, is working in the equity research department of Copal Partners as a summer intern. “I thought it would be a good emerging-markets experience,” he said.
Tellingly, Peng still hopes for an old-fashioned Wall Street job when he graduates. New York would be “ideal”, he said.
©2008/International Herald Tribune