This article first appeared in The Edge Malaysia Weekly on July 6, 2020 - July 12, 2020

RHB Bank Bhd said last week that it will sell its stockbroking business in Singapore, which is understood to be loss-making, due to the increasingly competitive broking environment there.

The move, which comes on the heels of it closing down its operations in Hong Kong, also because of the challenging broking scene, has raised questions as to whether it may exit more markets.

However, the banking group — Malaysia’s fourth largest by assets — says it has no intention to do so.

Apart from Malaysia, it has a broking presence in Indonesia, Thailand, Cambodia and Vietnam.

“RHB has no intention to exit the other markets where we have a broking presence. We believe these markets have growth potential, given their current stages of growth,” Robert Huray, CEO of RHB Investment Bank Bhd (RHBIB), tells The Edge.

RHBIB is RHB’s wholly-owned investment banking subsidiary.

Huray says the corporate exercises in Hong Kong and Singapore are part of a broader move under RHB’s five-year FIT22 strategy to consolidate its overseas investment banking businesses.

Last Tuesday, RHB announced in a Bursa Malaysia filing that RHBIB would sell its 100% stake in RHB Securities Singapore Pte Ltd (RHBSS) to Philip Securities, the largest non-bank-backed securities firm on the island republic.

Under the deal, Philip Securities will be acquiring only RHBSS’s stockbroking business. The rest of RHBSS’s capital markets businesses — encompassing client coverage, research and corporate advisory services, equity capital markets and institutional equities sales — will be transferred to RHB Bank Singapore, which is a branch of RHB.

The deal is expected to be completed in the third quarter.

Industry sources say it makes sense for RHB to sell the stockbroking business, as it was the loss-making component within RHBSS. Many of the island republic’s smaller stockbrokers are also loss-making, given the highly competitive space, they add.

RHBSS narrowed its pre-tax loss to S$7 million in FY2019 from S$21 million a year earlier, according to data from RHB’s website. In 1QFY2020, RHBSS made a pre-tax loss of S$1 million. It had total assets of S$0.1 billion as at March 31.

“RHBSS’s capital markets business has been profitable. Our stockbroking business, on the other hand, has not been performing as we had expected, owing to the increasingly competitive broking environment,” says Huray.

RHB did not disclose how much it would fetch from the sale.

When asked why, Huray says the consideration would be based on RHBSS’s net tangible assets preceding the disposal completion date, and adjustments that are mutually agreed upon between RHBIB and Philip Securities.

“This can be determined only after obtaining approvals from all regulatory authorities. Following this, the actual gain or loss [to RHB] will be established after the disposal consideration is determined. Nevertheless, the proposed transaction is not expected to have any material effect on the net assets and earnings of RHB banking group for this financial year ending 2020,” he says.

It was only last December that RHB announced it would wind down its Hong Kong operations, namely RHB Hong Kong Ltd and its subsidiaries, which are held under RHBIB.

“The increasingly challenging operating broking environment in Hong Kong has resulted in losses being recorded for RHB Hong Kong. As a result, it is no longer viable for [it] to continue its business operations,” RHB said at the time.

It was to have completed the exercise by the second quarter of this year.

On June 26, RHB also said it had begun the process for the voluntary liquidation and dissolution of RHB Philippines Inc, a dormant indirect wholly-owned subsidiary. This was to enable the group to save future costs associated with maintaining the company.

Only the big will survive

RHB’s planned sale of RHBSS, formerly known as DMG & Partners Securities, comes amid a pick up in the consolidation of the stockbroking industry in recent years.  

“You increasingly see — especially in the more developed markets like Singapore, Australia, the US and Europe, where people are moving towards online brokers that charge 0% fees — that only the big players are able to survive, based on economies of scale. It’s a fixed-cost business and you can trim costs up to a certain level but, after a while, if your top line keeps shrinking, [it’s harder to keep the business going]. So, the smaller players will end up consolidating,” an industry source says.

At home, the last big M&A seen in his space was in January 2018, when CIMB Group Holdings Bhd sold a 50% stake in its international stockbroking business platform — now known as CGS-CIMB Securities — to China Galaxy Securities Co Ltd (CGS). They each now hold an equal stake in the joint venture.

They also have an equal stake in the Malaysian stockbroking operation, CGS-CIMB Securities Sdn Bhd.

Philip Securities said the acquisition of RHBSS’s stockbroking business will improve its competitive position and distribution scale in Singapore and Asia.

Meanwhile, Huray says the deal will benefit RHB’s existing brokerage customers, who will enjoy greater access and convenience to trade a broad range of global investment products offered by Phillip Securities.

With the stockbroking business soon to be out of the equation, RHB expects its franchise in Singapore to be more focused and integrated to better serve wholesale and corporate customers.

Of the Malaysian banks, RHB has the biggest presence in Singapore, with six bank branches, after Malayan Banking Bhd (18 branches).

“The internal transfer of the capital markets businesses from RHBSS to RHB Bank Singapore would enable the RHB banking group to provide a more holistic customer experience to its corporate and institutional clients in Singapore and the region, through its suite of wholesale banking solutions. The alignment of the capital markets, corporate banking and global markets products of RHB Bank Singapore under one entity would allow the RHB banking group to more effectively deliver our solutions to our targeted clients,” Huray says.

RHB Bank Singapore recorded a pre-tax profit of S$24.7 million in FY2019, a 40.9% drop year on year, mainly because of lower expected credit losses written back on loans and higher operating expenses.

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