Next step at CIMB; partnering a global bank?

Published: 2009/12/09

As CIMB expands in Southeast Asia, it could be a likely partner for global banks looking to tap into the strong franchise of Malaysia’s second-largest bank by assets

When Malaysian billionaire Ananda Krishnan wanted to re-list his telecoms firm Maxis with a US$3 billion IPO, he tapped CIMB Group, the same bank he turned to when he listed Maxis in 2002 and privatised it five years later.

Just as CIMB expands in Southeast Asia, it could be a likely partner for global banks looking to tap into the strong franchise of Malaysia’s second-largest bank by assets.

CIMB, formed from a series of bank mergers that began in 1991, has stolen a march over larger rival Malayan Banking, but analysts say it lacks a global network and is hamstrung by its limited experience in dealing with complex products.

This may push CIMB, headed by Datuk Nazir Razak, younger brother of Prime Minister Datuk Seri Najib Razak, to team up with global peers such as JPMorgan or Goldman Sachs.



Goldman was granted licences by the Malaysian government on Tuesday to set up fund management and advisory operations in the country.

“Clearly, CIMB remains a regional bank rather than a global bank. To a certain extent, clients would want international distribution. That might be a slight disadvantage,” said Trevor Kalcic, RBS banking analyst in Singapore.

“But they can compensate for that by working with Wall Street banks to get the global footprint,” he said.

Arjun Khullar, JPMorgan’s head of equity capital markets for South and Southeast Asia, said CIMB’s understanding of Asian subtleties and access to domestic investors through its sprawling branch network will appeal to large investment banks, which typically look for strong local players to work with.

CIMB’s dominance in Malaysia’s investment banking and treasury markets has been credited to Nazir.

But, while Malaysia practices political patronage, fund managers and analysts say Nazir, nicknamed Jay, has mostly relied on the bank’s extensive client network to win deals.

“He is a very dynamic banker and has done a phenomenal job building a strong franchise in Malaysia,” said Teoh Kok Lin, managing director of Kuala Lumpur-based Singular Asset Management, which own CIMB shares on behalf of its clients.

Nazir, 42, has transformed the group into a regional bank from a local investment bank.

By contrast, Maybank is still battling the fallout from a series of expensive regional acquisitions it made in 2008.

“They (CIMB) are not a big Asian IB player yet. The big boys still rule when it comes to an Asian deal,” said Abdul Jalil Rasheed, equities chief at Aberdeen Asset Management’s Malaysia unit, which holds CIMB shares for its clients.

CIMB has the largest network in Southeast Asia with more than 1,150 branches criss-crossing Malaysia, Singapore, Indonesia and Thailand. It also has offices in New York, London, Hong Kong, Shanghai and Brunei.

Khazanah Nasional Bhd, Malaysia’s state-owned investment firm, is CIMB’s largest shareholder.

Valued at US$13.6 billion, CIMB has already made inroads into Thailand and Indonesia, countries whose investment banking deals have previously been dominated by banks such as Citi and Credit Suisse.

CIMB was tied at No.1 with Morgan Stanley for the most number of deals advised in Asia ex-Japan in the first half of this year, according to Thomson Reuters data. Both handled 28 deals, but Morgan’s totalled US$14 billion and CIMB, with just US$956 million, trailed others such as Deutsche Bank.

CIMB led the US$3.3 billion listing of Maxis, Southeast Asia’s biggest IPO in November, working alongside global banks such as Goldman Sachs and Credit Suisse.

Singapore’s DBS Group is CIMB’s closest rival in Southeast Asia.

CIMB’s stock has more than doubled so far this year, driven by increased capital market activity, helping it outperform a 60 per cent rise in the banking sector index. Maybank is up 48 per cent and Singapore’s DBS has gained 76 per cent.

OVERSEAS GROWTH

About 70 per cent of CIMB’s earnings are derived from Malaysia, with an Indonesian unit, CIMB Niaga Tbk, the second-largest contributor at about 30 per cent. CIMB also owns about 93 per cent of CIMB Thai Bank.

Fiona Leong, Citi analyst in Kuala Lumpur, expects CIMB to apply its Malaysian strategy of targeting middle-upper income earners to drive consumer banking growth at CIMB Niaga and CIMB Thai, while leveraging the parent’s expertise to offer foreign exchange and cash management products to boost fee income.

CIMB plans to list its shares in Bangkok as it aims for a bigger slice of the lending business in Southeast Asia’s second-largest economy.

“Having a regional presence is about execution and CIMB has done well in Indonesia, they just need to replicate that model in Thailand,” said Aberdeen’s Abdul Jalil.

In 2008, CIMB bought a near 20 per cent stake in China’s Bank of Yingkou Co Ltd as part of its strategy to expand into China. -- Reuters