COMPETITION looks set to heat up in the investment banking industry.
Bank Negara's joint announcement with the Securities Commission last month to enable universal brokers (UBs) to become investment banks (IBs) by merging with a discount house could add another four new players to the investment banking scene.
There are currently six UBs in the country – Hwang-DBS Securities Bhd, OSK Securities Bhd, Kuala Lumpur City Securities Sdn Bhd, K&N Kenanga Bhd, PM Securities Sdn Bhd and Avenue Securities Sdn Bhd.
Hwang-DBS, OSK, K&N Kenanga and Avenue are believed to have shown interest in becoming IBs.
An industry observer expects the market to be dominated by a few strong players like CIMB Bhd and AmInvestment Group Bhd in the coming years.
“There will eventually be three or four dominant players while the rest could be hard pressed to make ends meet,” she said.
Mayban Securities Sdn Bhd senior investment analyst Jesvin Kaur said the changes in the IB framework should result in a highly competitive IB environment with as many as 16 IBs at the end of the day.
“For our local market, the number may be slightly on the high side. However, we expect this number to be reduced as the banking sector consolidates. There is definitely strength in size (as proven by CIMB Bhd),” she said.
And this has yet to take into account the liberalisation of the financial services sector looming in 2007, which could see foreign players jumping onto the investment banking bandwagon.
However, Malaysian Industrial Development Finance Bhd (MIDF), which has been unwavering in its quest to become an IB, remains unfazed.
“Local players will have to prepare themselves, if they have not already done so, to face such a competitive environment. Further consolidation of the financial services sector is inevitable,” said group managing director Datuk Mohd Sallehuddin Othman.
MIDF has lined up strategies to face this eventuality.
Sallehuddin said the group is formulating a re-branding exercise to enhance MIDF as an integrated financial services provider.
“We believe a strong brand is important to differentiate us from the competition. We will focus on our corporate identity and culture through this exercise,” he said.
He feels having smart partnerships with foreign players would also be pertinent in a globalised financial services market. “The MIDF group is currently in talks with a foreign party to arrive at a partnership arrangement,” he said.
Having said that every cloud has a silver lining – competition might not be as intense as expected.
A banking analyst from a local stock broking firm explained that IBs were already competing with UBs and discount houses in most aspects of the business under the old investment-banking framework.
“The underlying trend is more towards consolidation between the UBs and discount houses. While the number of IBs increase, the number of UBs and discount houses are declining at the same time,” he said.
Sallehuddin said MIDF was concentrating on its niche market – the smaller- and medium-sized companies. “In the immediate future, we will be developing and strengthening our position in the domestic investment banking industry while exploring markets regionally,” he said.
Jesvin shares the same opinion.
“With the current evolving landscape, IBs will need to look beyond our market, given the increasing trend of cross-border deals. Expertise and connections abroad may become necessary for IBs to excel,” she noted.
Going forward, Sallehuddin believes growth in the financial services sector would come from the capital market.
“The capital market in Malaysia is still at its infancy stage relative to the more developed markets.
“Our Government aspires to further develop an active and efficient domestic capital market and MIDF has the expertise and resources to seize any available opportunities that arises,” he said.
The banking analyst concurs. He noted that while the number of IBs was increasing, the industry was still growing, judging from the emerging status of the local capital market.
The analyst said the funding structure of most corporations has switched from bank financing to capital market either via equity, debts or even a hybrid model.
“In addition, the market is getting matured and ready for more sophisticated structured products such as call-warrants and real estate investment trusts.
“However, I also believe that the prospects for IBs in the regional market is brighter compared with the domestic market. The major challenge will be more intense competition from foreign IBs as well,” he said.
In terms of outlook for 2006, Jesvin expects next year to be an interesting year for IBs, especially with the Government's push for further mergers and acquisitions as outlined in the Budget.
“The cross selling of products and services continues to provide additional growth areas for IBs to tap into,” she said.
HDBS : [Stock Watch] [News] OSK : [Stock Watch] [News] KENANGA : [Stock Watch] [News] AVENUE : [Stock Watch] [News] CIMB : [Stock Watch] [News] AIGB : [Stock Watch] [News] MAYBANK : [Stock Watch] [News] MIDF : [Stock Watch] [News]
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