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Saturday June 2, 2012

Maybank IB looking for regional reach

CEO Tengku Zafrul has managed to make MIB's presence felt in the region despite the presence of strong rival groups.

IT has been two years since Tengku Datuk Zafrul Tengku Abdul Aziz accepted the post of CEO of Maybank Investment Bank Bhd (MIB). The brief before him was simple. Malayan Banking Bhd (Maybank) was the domestic leader when it comes to commercial banking, and was expanding its reach across the region. The one thing that was missing from complementing its commercial banking business was a vibrant investment bank.

It was an long pursued mission of the bank. For years, Maybank wanted its investment banking business to mimic the influence of its commercial bank but it was not able to see any satisfactory movement in that direction.

“When (Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar) came in, things started to change. I noticed that he was trying to improve the investment bank (IB),” Zafrul tells StarBizWeek.

That meant having to compete head on in a space that is dominated by its rival CIMB Group Holdings Bhd. It was no easy task given the tools Zafrul and his growing team had then.

“When I first started this job, there was no Kim Eng. It allowed me to get used to Malaysia and the Maybank group. I was not as confident because of where we were. We did not have a CFO and corporate finance was less than 20 people. My focus was building the infrastructure and we got lucky that while the infrastructure was being built, deals were coming in because of the market and the support from the group,” he says.

Zafrul then got a clear sense of the seriousness of Maybank's ambition for its investment bank (IB).

“The commitment that I got when I proposed the Kim Eng deal showed that I have the buy-in from the board and the exco. To spend that kind of money after BII (Bank Internasional Indonesia) was not easy.

“That's when I realised they are committed. The support from the board and the exco is good provided we continue to deliver. MIB has done better than before and they have faith in the team. As long as we support the commercial bank, the support will be there. We have to work together.”

“The battle is out there.”

Building the franchise

Maybank flexed its intent in the IB space when it went out and acquired Singapore's Kim Eng early last year. It paid good money for the broker that had a reach throughout the main markets in Southeast Asia and Hong Kong.

The RM4.3bil deal accelerated MIB's presence into the important markets where its parent was expanding. And the results are showing.

“In Malaysia, we are one of the major players in investment banking. We also slowly becoming stronger in terms of broking where our market share has gone up from number nine and now we are top three or four depending on the volume,” says Zafrul.

Rival investment bankers too have noticed the change that has taken place within MIB, which is now among the leaders in many of the league standings that investment bankers aim for.

“They are more coordinated. Maybank's commercial bank is talking with its investment bank and they are leveraging off their balance sheet,” says a banker.

The acquisition of Kim Eng, which makes most of its money from broking, allows the Maybank group to utilise its balance sheet for the investment banking licences Kim Eng has but never utilised because of the capital demands that comes with the IB business.

“Because they don't have a strong investment banking franchise, they counted on retail players. What we are doing now is leveraging on the strength of Maybank in terms of expertise in investment banking by recruiting people and getting the supporting infrastructure,” says Zafrul.

That has allowed MIB through Maybank Kim Eng, which it is branded outside of Malaysia, to make its presence felt in a number of countries, namely Singapore and Indonesia.

Its investment banking presence is also being rolled out to Vietnam and Cambomdia where the commercial bank is present.

Having investment banking in those countries allows Maybank to be a lot more savvy in the banking business in those countries, and importantly make more money.

Zafrul says that for countries such as Indonesia, which is a hot market given its growth and potential, Maybank Kim Eng is now able to offer clients of BII an avenue to get listed.

He says the one benefit of doing that is for BII to retain their customers who might otherwise have gone with the firm that brought them to the Indonesian stock market.

“We also have a relatively strong presence in the Philippines. We have 52 commercial bank branches there and we are leveraging on that. When we completed the acquisition (of Kim Eng) in May last year, we launched the project merger integration, which is a 1-year project that should be completed by the end of this year. That's where we identified the areas we need to work on. We are now in the implementation stage.

“It's a lot of work and this year, while making sure we still earn money, is when we will build the foundation for growth because our target is to be a regional financial powerhouse by 2015,” says Zafrul.

Having a regional platform permits MIB to expand its presence in ways never done before.

“For Malaysia, we managed to become a joint global coordinator for Bumi Armada. That was the first time we played the GCC role. Before that we were unable to.

“We are seeing more cross-border deals and we will lose out if we did not have the reach,” says Zafrul.

MIB is now looking at linking all of its markets and that will be done through what Zafrul says are four business pillars.

The first is investment banking, which covers the equity markets, debt markets, corporate finance, project finance, advisory and fixed income advisory.

It then has the equity business for institutions and retail broking.

“Broking is important to us, Kim Eng traditionally has been a retail house and they are very strong in this,” he says.

The last pillar is the derivatives business.

“Kim Eng was successful as a retail broker and to support the commercial bank, we need to ensure that all the product suites are available to our all clients across the region.

Winning deals will pad up the pitchbook MIB and Maybank Kim Eng can show to potential clients. Coupled with a licence to operate in, it's a combination that is getting results.

“Even in Singapore, Maybank Kim Eng has won two deals because of the licence. IB gives the group a presence in the deals.”

Zafrul says MIB is competitive in Malaysia. In Indonesia he says Maybank Kim Eng is competitive in broking and investment banking is slowly building up.

“In Thailand and especially the Philippines, we are No. 1, even in investment banking. We are relatively small in the other countries like Vietnam and India. In terms of revenue and business it is not so big but we will continue to concentrate on broking in certain countries,” he says.

In Thailand, Maybank Kim Eng is looking at more advisory work and Zafrul says the strength of the broking business there is helping in the advisory work it does.

Because of its distribution network in Thailand, courtesy of being the biggest stockbroker there for the past 10 years where its market share is 14% compared with 7% by its next closest competitor, Maybank Kim Eng is able to use that influence to win over clients.

“Clients naturally come to us and get us involved. We have the traction and our research is strong there. That's why if there is an opportunity in commercial banking there it will really benefit us,” he says.

Since the acquisition of Kim Eng, the revenue mix for MIB has been 60:40, with Malaysia, being a strong anchor for the group, accounting for 40% of revenue generated.

In a good year, that ratio shifts to 70:30. Recently with the markets shaky and confidence rattled, that ratio dropped to 50:50 with Singapore and Hong Kong being the most affected.

With the bulk of revenue coming from offshore, keeping Maybank Kim Eng at or near the top of the regional ranking is Zafrul's priority.

“Its on my scorecard and KPI. We are targeting to be the number broker and top 5 in the league rankings in Asean by 2015. That's what the board wants by 2015,” he says.

In IB now, MIB and Maybank Kim Eng are in the top 5 in Thailand, Malaysia and the Philippines. In broking, Maybank Kim Eng ranks first in Thailand and the Philippines and Zafrul says Maybank Kim Eng is in the top two in Indonesia and ranks second or third in Singapore.

“We have to compete with CIMB and now RHB & OSK. Being No. 1 in three years is not easy,” he says.

“It is a very challenging target but it is not impossible. We have been successful in Malaysia where we have beaten targets the past 2 years. The board feels we should be aiming for the sky and think out of the box in terms of how to achieve that.”

One of the key ingredients in IB is talent. People who make and execute deals and generate products and ideas are essential.

While the problems of the world has got a lot of people worried, its a bit of a silver lining for domestic IBs such as MIB.

The big European banks are pulling back their capital and cutting down on headcount.

That means a bit more elbow room for getting deals done and the other benefit is the availability of experienced people looking for a job.

“Our main problem now is to ramp up talent and the foreign banks are supplying us with that. We have to compete for talent and cost-wise, remuneration has become more “realistic” compared to the boom times,” he says.

There are pros and cons to that.

Zafrul is seeing foreign banks not as hungry and focused as they were before.

The second benefit of the current global problems is that it's their problem - for now.

Most of the developing countries in the region Maybank Kim Eng operates in are sheltered from the problems as they are domestic oriented.

“They are insulated and we are able to continue with our Thailand, Indonesia and Philippine ventures. The ones that we need to be careful of are Singapore and Hong Kong. These are the 2 markets that are open and sensitive to what is happening.

“We might not push certain transactions and IPOs in those markets,” he says.

With Malaysian IBs having a good run throughout the region, it might prompt the other banking giants to ponder if it's worthwhile to do the same.

Zafrul expects that to happen eventually but there will not be a rush in that direction.

Indonesia has such a high ceiling in terms of the potential of the domestic industry that it may take some time before they start drawing up a regional IB strategy.

“In Singapore, they are not as aggressive. We don't see them as much as we see the foreign banks. They are very much Singapore centric,” he says, but that might not be the case for long too.

“The louder we shout and the more deals we win, I just can't imagine the other banks not coming in,” he says.

With the market capitalisation of the 7 stock exchanges in Asean worth around US$2 trillion, the market is certainly big enough.

With Malaysia seemingly having the most outward looking investment banks in the region, competition will crank up, and that will soon start once RHB Capital and OSK Holdings pool their investment banking operations together.

In growing the business, Zafrul says the one area the IB business will avoid is proprietary trading.

“We don't have the appetite for that and we are closing that down. Kim Eng made and lost money on that and as a group, we have taken a position that we don't want to take a position in proprietary trading,” he says.

But the one area MIB is keen to grow is its asset management.

“Yes, that is a big missing link which our competitors have that supports the broking business and sometimes the institutional business.

“It is something the group has thought of and are finally making a move,” he says.

“We have investment management which was parked under Etiqa. Etiqa manages the insurance and some wholesale institution money but not unit trust and a mutual funds. What we did was moved it out and moved it to the Maybank group and now we are coming out with a strong business for that.”

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