Jan 12, 2013

Malaysia - CIMB’s Asia Project Faces Challenges: Citigroup

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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


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