THE six universal brokers (UBs) in the country will now have the opportunity to become investment banks (IBs) following further liberalisation in the financial services sector.
Bank Negara and the Securities Commission jointly announced yesterday that UBs may be transformed into investment banks (IBs) if they merge with a discount house, subject to the purview of both regulators.
“Financial groups that have discount houses are now allowed to either rationalise their discount houses to become investment banks or dispose of them,” the regulators said in a brief statement.
Before this, there was no opportunity for the UBs to become IBs. The formula for an IB was a merger of a merchant bank with a stock brokerage. The UBs could not merge with merchant banks because none are available for sale now. All the merchant banks are part of large banking groups. With the latest ruling, the UBs can look for a discount house to forge a merger that will transform them into an IB.
It is said there are seven discount houses in the industry. An industry source said it makes sense for banking groups to sell their discount house licences. If they do not sell their discount house licence, it will be cancelled next year when discount houses will cease to exist under Financial Master Plan. “The banking groups might as well sell their discount house licence before that, and get some money for it,” the source said.
It is believed that all the UBs will take the opportunity to become IBs. The name of a bank is always more prestigious than a broker.
There are also practical considerations. IBs can take deposits which UBs are not allowed to. Hence, the cost of funds of IBs is currently much lower than for the UBs. In addition, IBs are allowed to do much more business - a much higher gearing - on their capital than UBs.
Avenue Capital Resources Bhd managing director Tengku Zafrul Aziz told StarBiz that “for us, it's good,” adding that “we can form an IB if we acquire a discount house.”
The other UBs are also expected to seek to become IBs since they have active corporate finance divisions and as such, are already functioning like IBs. Among the UBs, it is only Kuala Lumpur City Securities (KLCS) that does not need to acquire a discount house. KLCS was purchased by Alliance Merchant Bank and it is believed their merger will lead to the formation of an IB.
Meanwhile, Malaysian Industrial Development Finance Bhd (MIDF) said in a statement that it has entered into an agreement with Eng Securities Sdn Bhd to buy the latter's dealer's licence for RM30mil cash.
MIDF said this purchase is in line with its plans to form an IB with the group.
It is believed the group will be able to merge its Utama Merchant Bank with the dealer's licence to form an IB.
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