Investment banking momentum set to continue
AFTER a tough few years, local investment banks (IBs) finally saw more corporate activity this year and expect the momentum to be sustained into next year, notwithstanding global uncertainties.
While costs, margins and competition remain relevant issues, bank CEOs generally believe that 2018 will be better than this year as economic outlook continues to improve and corporate activity, which is closely tied to the IB business, increases.
Maybank Kim Eng CEO Datuk John Chong says the momentum built in 2017 is expected to continue supported by ongoing infrastructure deals and new issuances in the pipeline.
“Overall, 2017 has been a better year for IBs as we saw more Malaysian corporates moving forward with their restructuring and capital-raising exercises as the domestic and global economy improved,” he tells StarbizWeek.
There have been 12 IPOs on Bursa Malaysia so far this year for instance , with the same number for the whole of last year. More importantly, the value of funds raised has been far larger.
Granted, the listing of Lotte Chemical Titan Holding Bhd in August had seen total funds raised slashed by RM2bil, raising some RM4bil instead of an earlier envisaged RM6bil.
However, it remains the largest listing on the local stock exchange in recent years.
Comparatively, IPO volumes in Malaysia had collapsed last year amid a soft overall market, with combined IPOs raising just over RM1bil for the entire year.
Chong points out that the industry’s equity capital markets and merger and acquisition (M&A) space also saw increased activity this year while on the debt capital market front, issuances of corporate bonds and sukuk are projected to hit a five-year high amounting to between RM90bil and RM100bil.
“While we are expecting stronger growth for Malaysia and Asean in 2018, we remain cautious of the global uncertainties in particular geopolitics, trade policies and the interest rate outlook which may have an impact on the global economic outlook,” he says.
RHB Investment Bank CEO Robert Huray shares a similar sentiment with Chong, saying that the bank is optimistic about the IB business for 2018.
Huray says with global economies “riding firmly on a growth wave”, he believes that the current economic cycle has a strong chance of being extended. “Malaysia’s economic performance is also responding well to the pick-up in global trade and our economic research team is forecasting 2018 gross domestic product (GDP) growth to remain robust at a rate of 5.4%, against the 2017 estimate of 5.3%.”
Amid robust domestic liquidity, more stable oil prices and an undervalued ringgit, we expect corporate earnings to rebound next year,” he says.
Huray says RHB also expects more corporate activities arising from government-led ini- tiatives in the digital economy, infrastructure and finance.
AMMB Holdings Bhd group CEO Datuk Sulaiman Mohd Tahir is “cautiously optimistic” on the IB business moving forward.
He points out that the outlook for capital markets, securities and the M&A space remains promising moving into next year , backed by fundamental economic figures.
“With Malaysia’s GDP anticipated to grow at 5.7% to 5.9% for 2017, this provides a strong foundation for IB to grow,” he says.
Interestingly, all three local banks - Maybank, RHB and AMMB did not slash headcount within their IB space in the earlier years where deals were harder to come by, unlike many of their global counterparts.
At the peak of such cuts last year, global banks such as Goldman Sachs reportedly slashed as much as 30% of jobs within their Asian operations amid a slowdown in corporate activity.
A lot of these cuts took place in the familiar IB hubs of Hong Kong and Singapore.
“Not long ago we completed a series of hires, strengthening it further. At present, we are focused on hiring talent in terms of backfilling revenue generating roles, as well as several critical non-revenue generating positions,” says Sulaiman.
RHB’s Huray says there was no freeze on hiring nor job cuts for the bank over the last two years. “We continue with our hiring to ensure that critical positions are occupied including opportunistically hiring experienced talents from the region to further strengthen our capability. We also selectively hire to fill vacancies due to normal attrition,” he says.
As for Maybank Kim Eng, Chong says it had been selectively hiring across the region and across all products over the past two years.
“As global banks either pulled out or downsized their operations in the region, we decided to strategically hire, to take advantage of the new opportunities to grow our business,” Chong says. “We are taking a long-term view in growing our businesses in the region, an approach that is not necessarily shared by all banks,” he adds.