CIMB has strong foothold in Asean

CIMB Investment Bank (IB), the leading IB in the country, is keeping a firm grasp on its regional targets, against the industry-wide expansion in the IB business.

“We are the only regional IB that is truly Asean in focus,” says CEO Datuk Charon Wardini Mokhzani. “Because of that, we have certain value propositions which we give to corporates in South-East Asia (SEA).

“We have looked at a lot of these big corporates; most have businesses in SEA.
Charon: ‘We are an Asean bank and we will always be here.’

“The idea is that we can serve them all over SEA. But to get to that regional platform takes a while.”

“It took us six years to build up the regional business,” he recalls.”When we started doing it on our own, we realised that it was not just doing the deal but after that, we had to ensure the integration and maximisation of the investment.”

The whole regional thrust started when CIMB bought GK Goh in 2005; prior to that, CIMB had traditionally been an adviser to mergers and acquisitions (M&As) - the group soon learnt that advising was one thing, undergoing an acquisition and making it work was another.

Most of the senior staff in GK Goh have stayed on and that shows the integration has proceeded well.

“We have also increased market share outside Malaysia in Indonesia,Thailand and Singapore,” he says.

Building the network

CIMB started becoming both a universal bank and a regional investment bank; its strategy was to be the top South-East Asian universal regional bank.

“That has been our strategy since we merged with GK Goh which gave us an immediate regional footprint. Being part of a universal bank, we have the balance sheet and ability to underwrite transactions and provide the funding also. Sometimes, clients want you to put your money where your mouth is,” says Charon.

A universal bank is a financial institution that provides comprehensive retail, wholesale and investment banking services under one roof, ranging from current accounts, housing loans to the most sophisticated bond deals.

IB is a subset of universal banking

As soon as CIMB acquired GK Goh, it did some large transactions that boosted its profile and showed what it was capable of.

For instance, the deal for Wilmar International Ltd, one of the largest agri-businesses in the world and at one point, No.2 on the Singapore Stock Exchange.

The deal involved the conditional take-over offer to acquire all the voting shares of PPB Oil Palms Bhd not owned by Wilmar.

Right now, the group is concentrating its efforts on Malaysia, Indonesia and Thailand.

“One measure of success is we are the No. 1 broker in Malaysia and Singapore and No. 2 broker in Indonesia,” says Charon.

In Thailand, CIMB has good ranking in the initial public offer (IPO) league tables.

CIMB Securities Hong Kong is the group's IB arm in the Greater China region; in India, CIMB has a joint venture with Kotak Mahindra Bank in Mumbai.

“That is a different focus from what we do in SEA where we very much see ourselves as as a South- East Asian investment bank,” says Charon.

For markets like India and China, it's more to do with trade and investment flows between India and SEA; Hong Kong and China and SEA.

“In India, we do not have the ambition to be the No. 1 IB but we see ourselves as having an important role to play between the trade and investment flows.

“In Hong Kong, we have a reasonable practice; we do a lot of advisory work for companies in M&As and independent financial advisory (IFAs),” says Charon.

In New York and London, CIMB has brokerage offices to market South-East Asian and Hong Kong stocks to fund managers.

Reorganising the business

With the reorganisation in wholesale banking, the entire corporate client relationships are all managed regionally.

“This ensures we have proper regional coverage,” he says.

When CIMB became a universal bank, one of the big changes it made was to put corporate and investment banking together.

It has gone one stage further now by reorganising the entire wholesale bank that serves corporate clients.

Both the corporate client coverage and equities business are regionalised while the banking and treasury business are placed together.

To the clients, the funding they need, whether it is a loan or bond, should all be under one roof.

At the same time, more synergies may be obtained from placing foreign exchange and interest rates together.

CIMB's strategy is to be a leading universal bank in Malaysia, Indonesia, Singapore and Thailand.

It is also looking at setting up a universal bank in the Philippines, given the size of its market.

“The scope is there - it is a big country, people are highly educated and the stockmarket doing well,” says Charon.

In terms of market capitalisation and gross domestic product, these are the four largest markets in Asean.

“Each market has strong domestic players; we have to compete with them and also the global banks,” notes Charon.

The nature of the business is changing with electronic trading and the group will have to make investments in IT.

“We already have direct access to securities firms; we are looking at other forms of electronic broking.

“From the retail side, we have internet broking which we are expanding in all markets,” says Charon.

Competition mounting

Competition is heating up, acknowledges Charon.

“We want to be a leader,” says Charon. “We have already made the acquisition (of GK Goh); so we may hire more people, improve our product mix, introduce new and unique products and enhance our marketing.

“It may not involve buying another firm,” he says.

“We've been at it for longer and turning the business into something regional as opposed to just a collection of offices.

“We have shown that there is scope for a regional Asean bank and clients beginning to appreciate that.

“We are an Asean bank and we will always be here.

“When you look at the global economy, it would be advantageous for someone to know that their bankers will remain with them,” says Charon.

There is always scope for improvement but Charon does not see serious shortcomings anywhere, especially after buying SICCO Securities of Thailand to boost its brokerage business in the country.

“We have a decent platform to build from in Thailand. Upon completion of the SICCO acquisition, CIMB's position in the brokerage rankings of Thailand will jump from No.27 to No.15 but it still wants to improve further.

It is the No.2 broker in Indonesia under CIMB Securities, which already had a stockbroking unit prior to the purchase of GK Goh.

In Indonesia, CIMB wants to do more M&As deals and debt capital market deals.

CIMB has done a few transactions in Indonesia that were quite noteworthy; the work also involved making sure that the staff, the securities firms and banks worked together while ensuring that the funding lines were available.

“However, there may be no major moves. We just keep on doing our best,hiring good people and giving maximum value to our customers. We will always try to do things in a better way.”

In Malaysia, the group is always on a look-out for good people. “But we do not need another licence. The more we see ourselves as a regional bank, the more we can attract people to join us,” he says.

That trend has been obvious over the last two to three years.

Challenges ahead

“We all hope Europe will sort itself out,” says Charon, adding that rumours of a euro break-up did not bode well for investors confidence.

“There could be more confusion ahead,” he adds.

The state of the IPO market in the last half of this year reflects this jittery mood among companies.

“Some (IPOs) were cancelled or postponed ... There is a sense of uncertainty,” notes Charon, pointing out that the Pavilion IPO, being a fundamentally good proposition, still attracted demand.

“It is getting more challenging to find the right kind of company, right timing and price to invest,” he says. “We really have to find the right investment story.”

On the M&As side, there are good opportunities for companies to expand.

The large South-East Asian companies have good balance sheets. “If they want to raise money for acquisitions, the banks would be happy to do it. “The question is whether this is the right timing?” he says.

Corporate and investment banking contribute a quarter to a third of CIMB's profits. In the third quarter of this financial year, it contributed 26% which was lower than previous years.

For the CIMB group, the future growth driver will be consumer banking especially in countries with high population.

“We will continue to grow the IB business,” says Charon. “We will just carry on competing. There's always been competition in investment banking.”

In Malaysia, the regulators are supportive of the IB industry.

“The markets are different,” notes Charon. “Singapore is very sophisticated. Thailand has a lot of retail investors who buy retail bonds. We are going to launch call warrants in Thailand.”