Malaysia’s CIMB Group Holdings Bhd ., which went on an acquisition binge
last year, is likely to face serious challenges to its ambitions to become
Southeast Asia’s top investment bank, according to analysts at Citigroup Inc.
CIMB is best known for acquiring
the cash equities, equity capital markets and corporate finance businesses of
Royal Bank of Scotland PLC in 2012, enlarging its footprint outside the Asean
region into Australia, China and Taiwan. The bank is waiting for brokerage and
advisory licenses in South Korea and India, but the rest of the deal is already
complete. CIMB paid around 160 million pounds for those businesses.
Citi notes that the RBS
acquisition resulted in an 18.9% quarter-on-quarter spike in personnel cost
with no commensurate revenue growth, though CIMB management has said previously
that the acquisition would start to be earnings accretive this year. The equity
capital markets and corporate finance businesses are expected to be profitable,
and cash equities will begin to break even, Citi said, citing CIMB management.
“But given the sluggish capital
markets and the high cost base of investment banks, RBS’s contribution to
CIMB’s bottom line may not be significant,” wrote Citi.
CIMB also made another
acquisition last year in the Philippines, buying a majority stake in small and
privately-held Bank of Commerce from conglomerate San Miguel Corp. in May for
881 million ringgit (US$290 million). According to Citi, CIMB management
signaled that the deal would give the bank a foothold in infrastructure
financing in the country as the country implements major infrastructure
projects which require funding.
“These acquisitions have led to
some concern among investors, some of whom expressed concerns over a possible
loss of focus on the part of management,” said Citi.
According to Citi, CIMB has been
losing share in Malaysia in consumer banking, and has been losing ground to
competitor Malayan Banking Bhd . in investment-banking.
Citi said CIMB is showing signs
of overstretch. Citi says CIMB, which operates in nine out of 10 Asean
countries, has “several sub-scale operations,” including its Indonesian Niaga
unit, which is facing earnings pressure as competition intensifies.
Citi says CIMB’s acquisition of
Bank Thai in Thailand in 2008 suggests building a pan-Asean bank has been
difficult. “CIMB Thai remains a work-in-progress four years after the
acquisition and CIMB may face the same issues when Philippines-based Bank of
Commerce comes onboard in early-2013.”
Isabella Steger
Business & Investment Opportunities
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