MOVES by banks to merge and form larger financial services groups are picking up steam again, more so in view of the need to build capacity to meet the challenges of globalisation.
Yesterday, Commerce Asset-Holdings Bhd (CAHB) announced it has received Bank Negara's approval to begin negotiations with AMMB Holdings Bhd on possible mergers between Bumiputra-Commerce Bank Bhd and AmBank Bhd, and between Bumiputra-Commerce Finance Bhd and AmFinance Bhd.
We expect discussions and negotiations to begin soon and will make further announcements on the progress at the appropriate time,'' CAHB told the KLSE, adding that the central bank's approval was valid till Sept 15.
These are not the first merger talks that AMMB has been involved in. Just last month such talks with EON Banking Group collapsed after two months of gruelling negotiations. Sources said the two parties could not agree on pricing.
Although banking experts see a merger between AmBank and Bumiputra-Commerce as a very good fit, sources told StarBiz that AMMB was unlikely to include its merchant banking and stockbroking unit at this juncture, as it had plans to turn its merchant banking arm into an investment bank.
It is also unlikely that AMMB would sell its insurance arm, which is said to be very profitable.
Some analysts said a merger of their merchant banking units would create the country's largest investment/merchant bank.
CAHB has a stake in Commerce International Merchant Bankers Bhd while AMMB controls AmMerchant Bank Bhd. Both have very strong franchises in investment banking.
And a merger of their commercial banks Bumiputra-Commerce and AmBank will create an entity coming in second only to Malayan Banking Bhd. Their combined assets would total RM153bil, slightly lower than Maybank's RM160.7bil.
This will virtually make Maybank and a merged CAHB/AMMB group out of reach'' as far as the other local banks are concerned.
RHB banking group would then be third with total assets of RM66.3bil.
Making the industry more oligopolistic, with two dominant players, will set the stage for improvement in pricing power for all players once demand for banking services picks up,'' Lim Beng Leong, UOB Kay Hian head of research, Malaysia, said in a note. At the micro level, the loan mix for CAHB would also improve, with its mix of higher margin car loans improving from 6.4% presently to 18.6%.
Arab-Malaysian Corp (Amcorp) has a 34.33% stake in AMMB, the holding company for the group's financial operations, which include AmBank, AmMerchant, AmFinance, AmSecurities and AmAssurance.
We believe CAHB desires AMMB's finance arm, AmFinance, Lim declared. We have also attached a scenario where CAHB merges with just AmFinance. However, this is an unlikely scenario, as Amcorp would not want to dilute its value in the entire AMMB Group by just carving away AmFinance or just retaining AmMerchant Bank.''
Assuming a 1.5 times price to book value cash offer, the 23.1% dilution in net tangible assets per share (from RM2.55 to RM1.96) for CAHB is a small price to pay to improve the competitive position and landscape,'' Lim said.
Apart from this proposed deal, there is speculation that EON banking group is on the acquisition path, one linked to a proposed merger with RHB banking group. Other sources, however, dismissed it as highly unlikely.
RHB Capital announced on Tuesday that it has obtained Bank Negara's approval to begin merger talks with Allianz AG, which has a strong insurance franchise, on certain non-banking areas.
Talk has also surfaced that EON banking group may be eyeing the Southern banking group, but that could not be confirmed.
These are not the only rumblings in the banking industry. The Hong Leong banking group has been known to be on the lookout for a merchant banking unit.
Now that executive director Yvonne Chia a former CEO of RHB Bank and who had overseen major merger exercises is at Hong Leong Bank, bankers do not discount it casting an eye on acquisitions.
Public Bank Bhd is also said to be eyeing a larger slice of the investment banking scene.