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New twist in Malaysia's investment banking

[ 20-02-2014 ]
New twist in Malaysia's investment banking

INVESTMENT banking in Malaysia has taken a new twist with the smaller banking groups tying up with local and worldwide presences.

Feeling the heat of limited organic growth, Affin Holdings Bhd is buying the core operations of Hwang DBS (M) Bhd for RM1.36bil.

RHB Investment Bank Bhd (RHBIB) is spreading its wings into the European market via a partnership with a leading European investment bank, Espirito Santo Investment Bank (ESIB).

Under the partnership, ESIB will undertake to distribute RHBIB’s Asean equity research and investment banking products in Europe and North America which are markets in recovery.

“The partnership will give us access to the European and North American markets and vice versa,’’ RHB Capital group managing director Kellee Kam told StarBiz.

“The aim here is to connect opportunities between the regions, leveraging on the strengths of both of the companies,’’ Kam said.

So far, it’s been the larger investment banking goups making waves overseas with CIMB’s purchase of Singapore based GK Goh and Royal Bank of Scotland’s (RBS) Asian arm, and Maybank’s purchase of Singapore based Kim Eng Securities.

“It will be a challenge to make it work,’’ Affin Holdings CEO Datuk Zulkiflee Abbas Abdul Hamid told StarBiz.

“But it was an opportunity to make investment banking relevant,’’ he said. “This is the best opportunity as there are probably no more investment banking goups to acquire.’’

The Hwang DBS acquisition catapults Affin’s stockbroking business into second position and asset management, fifth.

“Hwang DBS’ branding and people gives us the synergy to move on,’’ he said. “Buying three of their operations not only enables us to cover the local landscape but also gives us the scale to look regionally.’’

Earlier, Affin Holdings signed a business alliance with Japan’s Daiwa Securities Group Inc to mutually distribute research products and channel client trades.

“We are not giving up on Indonesia,’’ Zulkiflee said, adding that Affin Holdings was still pursuing the purchase of a bank in Indonesia.

In their efforts to spread their wings, these banking groups must place risk management as a top priority.

With enlarged aspirations come enlarged risks and costs.

As it is, CIMB is feeling the pressure in dealing with costs related to its RBS acquisition.

CIMB is having a tougher time with investment banking than the Malaysian bank’s management expected when they bought most of RBS’ Asian arm, but Datuk Seri Nazir Razak, chief executive, insists it will break even next year,’’ said the Financial Times.

Nazir told the Financial Times he had underestimated the difficulties of combining the businesses and ironing out costs, as well as the time it would take to replace some of the licences that RBS wanted to keep after the spring 2012 agreement.

Asian banks emerged tops in project financing last year.

Japanese and other Asian banks cemented their positions as the lead arrangers for project-financing deals last year while several big European banks continued to retreat from the business as they shrink their balance sheets, said Reuters.

There were US$204bil of project finance deals globally last year, up 0.8% from 2012, and the top six arrangers were from Japan, India, China and Korea, according to Thomson Reuters data.

This trend may not be sustainable as it may be only a matter of time before European banks catch up after cleaning up their balance sheets and rebalancing their priorities.

Asian banks should use this window of opportunity to stamp their mark and build branding.

At the Singapore Exchange Ltd (SGX), the penny stock scandal that hammered trading volume, has resulted in the SGX reporting its weakest quarterly profit in more than a year, said Reuters.

However, revenue from its derivatives business outstripping securities for the first time.

Revenue from share trading and other listed-securities was 13% lower than a year ago, while derivatives jumped 16%, underlining the bourse’s increasingly diverse business mix, said Reuters.

Developing the derivatives market at the SGX has paid off and helped to offset problems in the equity side.

Although fraught with competition and challenges, the derivatives sector apppears to yield sustainable results fo SGX.

However, strict monitoring and risk management are essentials for the continued success of its derivatives business that should be more as a hedging than speculative tool.

Columnist Yap Leng Kuen awaits further progress in SGX’s struggle to rise above the ashes.