WHILE others are cutting back on their expansion plans, RHB Investment Bank Bhd seems to be bucking the trend — it is looking to acquire an asset management business in Indonesia.

“We want to beef up certain businesses, such as asset management, and we’re looking at Indonesia. If we cannot acquire a firm there, maybe because valuations are high, then we will do a joint venture — this would be a lower-cost form of expansion,” CEO Mike Chan tells The Edge.

However, RHB IB — one of the top IBs in terms of profit before tax (PBT) last year — has yet to identify a target. “We’re still looking. We’re evaluating proposals given by some other advisers,” he says.

The group is also strengthening its mergers and acquisitions (M&A) advisory business as it anticipates a pick-up in these activities across Asean.

“M&A is something that we think is going to see ramp-up in Asean, so we have strengthened the team that’s focusing on the M&A business. This is about hiring the right guys. Not only do we want to advise the M&A, we also want to fund the M&A activities, whether it’s through the bank market or through the capital markets,” says Chan.

As global IBs retreat or cut back on their activities in the region, RHB IB will have more opportunities to be involved in large M&A deals, he points out. It was only two years ago that RHB IB became a regional player following its acquisition of OSK Investment Bank Bhd.

Being a regional player — with a presence in Indonesia, Hong Kong and Thailand, among others — has worked to RHB IB’s advantage as activities in the home market have slowed substantially.

“We position ourselves as a regional bank in Southeast Asia. Obviously, our cost base is a lot lower than the big foreign IBs, and so if we can offer the same service to our clients, there’s no reason for them to pay more to hire a foreign bank to do the same thing — unless our quality is that far off. Increasingly, you can see that the gap is narrowing,” Chan says.

But deals, especially big ones, are slow in coming as sentiment is weak in Asean due to economic and political reasons. “Malaysia and Singapore, especially, are weak. Most of the activities in Asia are centred on the China and Hong Kong side.”

RHB IB embarked on a cost management programme this year. “When the market is down, you have to optimise cost and relook at your business model to be more efficient. Our cost-to-income ratio (CIR) still needs to be contained. Last year, we finished the year with a CIR of probably 75% at the IB level. Investment banking is mainly centred around human resources, people, so IBs inherently have high CIR. Over 60% of our cost base is actually from human resources,” he explains.

Chan says there are no plans to cut jobs for now. However, as in any organisation, underperformers will be weeded out, he points out. “We make full use of staff and move them overseas when there are requirements, because we have overseas branches in Singapore, Indonesia, Thailand and Hong Kong, which are key markets. We have the people and the regional platform, so we allow mobility.

“We’re optimistic about investment banking because the deal pipeline is still there. So, the key now is to get the team to focus on building the pipelines when they’re not busy executing deals.”

RHB IB had a very good year in terms of earnings last year, with a PBT of RM345.9 million, 86.4% higher than the previous year.

“This year, it’s definitely a tall order to maintain the same sort of results. Frankly, the deal flows are lower … but we’re busy increasing the pipeline.”

In Malaysia, the group is working on “three or four” IPOs, he says. In Thailand, it has submitted applications for four IPOs, while in Indonesia, it has submitted two, and in Hong Kong, one. “So altogether, for us, regionally, we’re looking at about 10 IPOs. The numbers are lower compared with last year.”

The new Shanghai-Hong Kong Stock Connect, which enables investors from both sides to trade a specified range of listed stocks in each other’s markets through their respective securities companies, has been a boon for RHB IB’s Hong Kong business.

“Over the last three months, we saw daily volumes increase 2.5 times in our Hong Kong office compared with before. We see Hong Kong doing well this year, mainly from the retail brokerage as well as capital markets,” he says.

Chan, who became CEO in August 2013, has about 23 years of experience in the financial services industry and seen its peaks and troughs.

“You know, capital markets will always rebalance themselves. So now they may be down, but when it’s not as hot in China, money will flow back into Asean, so then hopefully, the pipelines we have can be rolled out.”

This article first appeared in The Edge Malaysia Weekly, on June 29 - July 5, 2015.

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