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Tuesday November 20, 2012

S-E Asia a likely hotspot for global investment bank growth

KUALA LUMPUR: South-East Asia is expected to be a hotspot for growth for global investment banks while more consolidation is expected to reduce the number of major players to around 10 or less within the next three to five years, from the current 14.

“This is more a stabilisation than a turnaround. Banks shouldn't rely on further growth in the near term, but rather focus on creating higher profits out of a flat revenue pool,” said Roland Berger Strategy Consultants senior partner Markus Boehme.

He added that moving forward, the investment banking industry would be more fixed income driven, as equities “continue on a slum”.

In terms of Islamic finance, he said that the country would continue to lead in developing and promoting Islamic banking systems.

However, Malaysia will continue to face competition from the Middle East. While there is competition, there will also be an automatic connection with Middle Eastern countries, according to him.

In a recent report on the investment banking industry Roland Berger said although the performance of global investment banks had improved in the past few months, structural earnings problems still persisted on the back of the ongoing sovereign debt crisis.

In the third quarter, investment banks had generated revenues of about 60 billion euros, a sharp positive move from the same period last year. Boehme said he expected full-year 2012 revenue to grow by about 10% to 250 billion euros.

“Return on equity could bounce back to 11%. Despite a rebound in revenue and profitability, as compared to 2011, there will be more restructuring, consolidation, and a continued shift into emerging markets, beyond just the traditional financial hubs in Asia,” he said.

As an example, he cited CIMB Group Holdings' acquisition of the majority of Royal Bank of Scotland's (RBS) Asian operations for RM432mil.

The acquisition included RBS' Australian cash equities, equity capital markets and its mergers and acquisition businesses.

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