Wall Street Beaten in Southeast Asia Opens Door for Maybank
“Our guys are working flat out,” said Tengku Zafrul Tengku Abdul Aziz, chief executive officer of Malayan Banking Bhd. (MAY)’s investment bank, in an interview in Singapore. “To grow further, we need to recruit. For the number of deals we’re doing, the kind of expansion plans we have, we need to have people.”
Maybank, as the bank is known, and local competitor CIMB Group Holdings Bhd. (CIMB) are riding a surge in mergers and stock sales in Southeast Asia, a region spanning the Philippines to Thailand. Adding headcount and acquiring competitors, their ambition is to grow into regional investment-banking powerhouses to compete in Asia with the likes of Goldman Sachs Group Inc. (GS) and Morgan Stanley. (MS) History shows it won’t be easy.
“The landscape is littered with regional banks that have tried to get into investment banking and ultimately struggled,” said Christian Brun, a Hong Kong-based partner at executive search firm Wellesley Partners who specializes in recruiting investment bankers. “The ones who are building their businesses today are going to have to do it in a much more considered and thoughtful way.”
In parlaying home-market dominance into regional aspirations, Maybank and CIMB are echoing a strategy attempted by Japan’s Daiwa Securities Group Inc., Macquarie Group Ltd. (MQG) of Australia, and South Korea’s Samsung Securities Co. in past years. Yet those firms have retrenched in the face of a global slowdown in mergers, share sales and trading.
Adding to the challenge, some global rivals are taking aim at Maybank and CIMB’s home region. Citigroup Inc. (C) has doubled its number of investment bankers focused on Southeast Asia in the last three years. HSBC Holdings Plc tripled headcount at its investment banking unit in the region over the same period and plans to expand the division’s workforce by another 15 percent next year, according to Chang Tou Chen, head of global banking for Southeast Asia.
The region’s buoyant investment banking industry, underpinned by rising consumer demand and easy credit, contrasts with a depressed global dealmaking market. The value of mergers involving companies in Southeast Asia has swelled to $136.5 billion this year, close to the record $137.1 billion reached in 2007, data compiled by Bloomberg show. Sales of domestic bonds jumped 33 percent to a record $80 billion from the previous high of $60 billion set last year.
Malaysia is poised to end this year as the world’s fifth- largest market for initial public offerings, up from 14th in 2011, beating Canada and the U.K. with $6.8 billion of deals as the benchmark stock index rallied to a record in November. It trails Hong Kong fundraising by 14 percent.
“Capital markets are open and receptive to the Southeast Asia story,” said Farhan Faruqui, Citigroup’s head of corporate and investment banking for the Asia-Pacific region. “You will see more headlines made from Southeast Asia in the coming months and years.”
Maybank plans to boost headcount at its investment banking and brokerage business by 10 percent a year until 2015, according to Tengku Zafrul. The division currently employs some 3,000 people.
The lender bought Singapore’s Kim Eng Holdings Ltd. in April last year for S$1.79 billion ($1.5 billion), giving it stock-broking and investment banking operations in Singapore, Thailand, Indonesia, the Philippines and Vietnam. It plans to expand by recruiting institutional sales, equity and advisory bankers who cover industries such as utilities, oil and gas.
The unit, called Maybank Kim Eng, will focus on expanding in Southeast Asia through 2015; after that, Maybank plans to continue growing in the Asia-Pacific region and the Middle East, Tengku Zafrul said.
CIMB, which was Malaysia’s top-ranked stock underwriter over the past four years, in April acquired most of Royal Bank of Scotland Group Plc’s securities operations in Asia. CIMB said in June that the $142 million purchase would enable it to compete with banks like JPMorgan Chase & Co. (JPM) across Asia.
“We want to be an Asia-Pacific investment bank,” said Charon Wardini Mokhzani, CEO of CIMB Investment Bank Bhd., which added more than 300 people through the RBS deal. “The plan is to complete and bed down this acquisition, and grow next year based on the enlarged platform we now have.”
Pretax profit at Maybank Kim Eng fell 6 percent in the latest fiscal year to 135.5 million ringgit ($44 million). In the same period, CIMB Investment Bank’s pretax profit jumped 75 percent to 140 million ringgit.
DBS Group Holdings Ltd., Southeast Asia’s largest lender, is taking a more cautious approach to investment banking. CEO Piyush Gupta said in November that he plans to build the Singapore-based company’s fixed-income business while avoiding any large-scale expansion in equity underwriting or mergers advisory.
“Any M&A activity and advisory activity in the region we can do because we know the clients, but it’s not a huge part of our business,” he said on Nov. 1. “Fixed income I like because it matches with what we do well and we don’t need a lot of prima donna bankers to try and do that.”
Among this year’s most high-profile Asian deals, at least two feature Southeast Asian targets or buyers: The battle for Singapore’s Fraser & Neave Ltd. (FNN) between Thai billionaire Charoen Sirivadhanabhakdi and a group led by Overseas Union Enterprise Ltd., backed by Indonesia’s Lippo Group; and the $9.4 billion purchase of a stake in China’s second-largest insurer by another Thai billionaire, Dhanin Chearavanont.
The regional banks are confronting an advisory market in Asia now dominated by U.S. and European institutions. Led by New York-based Goldman Sachs, they occupy the top seven spots among mergers advisers for companies in the Asia-Pacific region this year, data compiled by Bloomberg show. In equity and equity- linked products, eight of the top 10 underwriters are Western banks, the data show.
Maybank and CIMB are having mixed success in Southeast Asian investment banking this year as measured by volume of business. Maybank jumped in sales of shares and convertible bonds to sixth this year from No. 10 in 2011, while CIMB advanced to third from fourth. Both banks gave ground to rivals in mergers advisory in the region during 2012, the data show. They still lead their Western competitors in underwriting domestic bond sales there.
Some Asian competitors have reversed investment-banking expansions in the past year. Japan’s Daiwa, which in 2010 agreed to pay about $1 billion for KBC Groep NV’s convertible bond and Asia equity derivatives units, has cut more than 500 positions in Asia and Europe since last October -- including a September announcement that it would eliminate as many as 50 derivatives jobs in Hong Kong.
Samsung Securities, which in 2009 vowed to bolster investment banking operations in the region by hiring and opening offices, said in February it would more than halve staff at its 100-person Hong Kong unit. Macquarie, Australia’s largest investment bank, fired about 10 percent of its investment banking workforce in Asia that month too, according to people with knowledge of the matter, and CEO Nicholas Moore said in October the market remains “subdued.”
Unlike some competitors, CIMB and Maybank have commercial- banking operations that they can parlay into advisory roles for clients.
Since buying Kim Eng, Maybank has been pushing commercial bankers to work more closely with dealmakers, Tengku Zafrul said. While pitching to manage the IPO of AirAsia X Sdn., the lender proposed establishing a co-branded credit card with the Malaysian carrier, he said.
Maybank was hired to arrange the share sale, together with CIMB and Credit Suisse Group AG, according to AirAsia X’s draft listing prospectus filed in November.
“It’s exactly these banks who are very serious competitors,” Markus Boehme, a partner at Munich-based consultant Roland Berger, said of Maybank and CIMB. “They have the strong footprint on the ground and more importantly, they have the funding base that many global players lack.”
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