Challenge to sustain investment banking

At one stage, criticisms have abound over the mushrooming of investment banks (IBs) - with nine bank-backed and six non-bank backed - it does seem a little crowded.

Nevertheless, the persistent ones had ploughed on to sow the seeds of regionalisation while building their core strengths and niche markets.

Among the 15 IBs, the CIMB group stands out in its clear ambition to be a leading universal bank in South-East Asia, providing a full array of banking services ranging from savings accounts to large corporate transactions for fund-raising. The first major deal that propelled CIMB into the global arena was the RM500mil acquisition of regional stockbroker GK Goh Holdings Ltd in 2005. “That gave us the reach to markets in Singapore, Indonesia, Thailand, Hong Kong ad London,'' recalls Datuk Charon Wardini Mokhzani, corporate and investment banking deputy CEO of the CIMB group.

U Chen Hock says OSK is trying to reach the European market and expose the Asean markets to the Europeans.

CIMB was a listed merchant bank which bought the commercial bank, Bumiputra Commerce Bank, in 2005; subsequently, it acquired Southern Bank, PT Bank Niaga and Bank Thai.

“We realised that to really make an impact as a regional IB, we needed a strong balance sheet. The trend is to be part of a banking group, have a sizeable balance sheet and niche markets,'' says Charon.

OSK Investment Bank, one of the more successful non-bank backed IBs, has put in place regional strategies for growth as well as a focus on its niches in the smaller and mid-cap market as well as research capabilities. “Four years ago, we started developing markets in Singapore, Indonesia and Hong Kong,'' says U Chen Hock, CEO of OSK Investment Bank. Singapore accounts for the bulk or 30% of the overseas pre-tax profit.

OSK is establishing a foothold in Thailand by acquiring a securities house, BFIT Securities Public Co, and in Cambodia, it has a full-fledged commercial bank with nine branches as well as licence for stockbroking and corporate finance.

“We need to boost our institutional equity capability especially in Hong Kong, which is one of the largest financial gateways,'' U tells StarBizWeek.

OSK has restructured its IB business and put in a new team of dealers. “That has shown progress and we are trying to reach the European market and expose the Asean markets to the Europeans,'' he says.

In terms of strategic tie-ups, OSK is exploring opportunities in South Korea, Taiwan and China.

Its partnership with Okasan Securities Company Ltd of Japan is bearing fruit with deals coming through, says U.

Maybank Investment Bank, which already offers a full suite of services, sees the growing importance of cross-border trade and corporate activity within the region.

“The acquisition of Kim Eng thus serves as a platform for this regional expansion that will allow the group to quickly establish a base in the key Asean markets,'' says its CEO Tengku Zafrul Tengku Aziz.

This will also broaden Maybank IB's client base and enable the bank to provide cross-border advisory work as well as participate in regional fund-raising and M&A exercises.

“We will eventually be able to provide clients with a regional platform for equities trading as well as access to regional equity research reports,'' says Zafrul.

RHB Investment Bank plans to improve the marketing and business development for its stockbroking arm to ensure a greater presence in the market. “We need to focus and build on a strong management team,'' says RHB Bank chairman Tan Sri Azlan Zainol.

Among the IBs, OSK and HwangDBS have been capitalising on the new platform and found new growth drivers for their businesses, observes Lee Jim Leng, CEO of Hong Leong Investment Bank.

Both have started banking operations in Cambodia, and have continued to build on the corporate advisory, capital markets and treasury-related part of the businesses as new limbs of income for their investment banks. “Globalisation will affect the way we do our business. For example, foreign share trading, while not as significant as the domestic trading volumes, will be important to most investment banks seeking to retain and recapture some of these pockets of monies which has been part of the local trading income stream,'' says Lee. “The roles of investment banks have grown in importance,'' says Affin Investment Bank managing director Maimoonah Hussain. Apart from domestic capital raising in the equity and bond markets, the advisory role has expanded to cover regional mergers and acquisitions, equity capital market deals and sukuk issuance/transactions.

Apart from largely plain vanilla products in one market, some especially CIMB - are able to meet the increasingly complex cross currencies and markets needs of their clients who operate in the region. “The key criteria to becoming a formidable universal bank (UB) is to first have the capacity in terms of capital, expertise, infrastructure, strong franchise and branding,'' says Maimoonah.

“It is not easy to achieve the sheer size of the top Asean universal banks, of which asset size stands at around US$18bil to US$20bil. For mid-sized and smaller Malaysian banks, it is possible to venture out via a joint-venture with other overseas players while cross-selling products and sharing expertise.''

Indeed, the race between UBs providing the full suite of products, and IBs is stiff. “In Malaysia, where the market is still developing and going through consolidation, competition is heating up on all fronts for IBs. “Not only do they have to compete with each other, but the market is also well-combed by UBs leaving very little to IBs. The IBs have to find ways to differentiate themselves. find a relevant niche or risk becoming an entity that's IB in name but a stockbroker at heart.'' says Zafrul.