Thursday 28 Mar 2024
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PETALING JAYA: Affin Hwang Capital had sent out an email to its staff recently informing them of an impending rationalisation and consolidation exercise, sources said.

This has sparked speculation that the investment banking arm of Affin Holdings Bhd could be the next fi nancial group to announce job cuts as the operating environment in the investment banking industry is getting harsh.

“The email notes that the heads of departments will be talking to staff this week on the repositioning of the group’s business model through a rationalisation and consolidation exercise,” said a source familiar with the matter.

“The staff were assured that the management team did not arrive at this outcome lightly — considerable eff orts were made throughout the entire process to deliberate and analyse all options available to the group,” added the source.

The source did not elaborate on what the rationalisation and consolidation exercise will entail. The email came at the time when Affin Hwang will soon mark its fi rst anniversary for the completion of the takeover of Hwang-DBS (M) Bhd’s investment banking operation plus asset management and futures dealing businesses for RM1.36 billion.

The acquisition was announced in January last year, and completed on Sept 20 the same year.

Hwang Investment Bank was valued at RM1.09 billion, or 1.28 times book value of RM849.26 million as at Jan 31, 2013. Affi n Holdings also bought 70% of Hwang Investment Management Bhd and 49% of Asian

Islamic Investment Management Sdn Bhd for RM262 million, and HDM Futures Sdn Bhd for RM13 million.

The complementary strengthsm and capabilities of the Hwang-DBS businesses are expected to create revenue synergies of RM32 million in profi t before tax (PBT) and cost synergies of RM79 million (PBT) between 2015 and 2017. The group also expects to see some di-synergies of up to RM25 million (PBT) over the next three years.Affin Hwang would probably be the third local fi nancial group this year that would embark on the job retrenchment scheme after CIMB Group Holdings Bhd and RHB Capital Bhd.

Just last week, RHB Capital announced that the banking group is off ering a separation scheme called  career transition scheme (CTS), which the banking group said it is a move to improve its productivity and optimise manpower in order to remain competitive and resilient.

However, RHB Capital said it had not set any target for the number of employees to be released from the scheme.Maybank Investment Bank Research in its note dated Sept 3 commented that RHB Capital’s need to ationalise is evident in that its cost/income ratio (CIR)of 55.5% in the fi rst half of this year was high, compared with the industry average of 49%.

“Management has set itself a near-term CIR target of less than 51%. We project a higher CIR of 57% for FY16 (fi nancial year 2016). So, ceteris paribus, the cost savings from the CTS would take the ratio down to about 53%,” noted the research report.The research outfi t expects the compensation to be 1.25 times basic salary.

CIMB Group, which completed its mutual separation scheme(MSS) in July, saw the rationalisation of 11.1% of its workforce involving a total of 3,599 personnel — 1,891 were in Malaysia and 1,708 in Indonesia. The MSS cost was estimated to be about RM443 million, with expected savings from the headcount reduction of RM292 million per annum translating into an 18.2 months’ payback.

 

This article first appeared in digitaledge Daily, on September 9, 2015.

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